Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Saturday, 22 October 2016

Oz migration to NZ slows

Trans-Tasman flows

Since 2010, Australia has benefited from massive a net migration from New Zealand of nearly 117,000 persons. 

Having earned a very handy wedge through the mining boom, a small smattering of Kiwis are now drifting back home on a net basis, though actually not that many when you look at the data (it nets out to a couple of thousand over the year to September).

The chart looks quite significant when presented this way, but if I plotted the net migration to Australia in cumulative terms you'd just see a trend showing a massive half-decade surge of about 120,000 immigrants flocking to Australia that eventually ran out of steam.

As a so-termed 'recession indicator', if you can even call it that, this data series been poor to say the least. Of course, everyone wants to predict the next recession in the internet age, but we aren't even close to a recession right now, unless that is you're in a resources region...

Oz migration to NZ slows in September

Annual permanent and long-term migration to New Zealand from Australia - partly comprising Kiwis returning home - slowed to 25,735 in September from the prior month, although remaining marginally higher than the 24,683 in the prior year corresponding period to September 2015. 

Nationally, however, total migration into NZ from all countries moved significantly higher over the year to September, with net migration soaring to a record high 70,000, breaking the previous record high of 69,100.

The seasonally adjusted monthly net migration figure of 6,300 in September 2016 was also a record, beating the previous high of 6,200 set in November 2015. 

There have been substantial increases in the number of migrants to New Zealand from China, India, and South Africa across recent years, although arrivals from India have slowed lately. 

New Zealand's volatile unemployment rate has not yet been reported for the September 2016 quarter, so we'll have to wait to see how it compares to Australia's 43-month low reading of 5.57 per cent. Probably a bit lower, but not all that much.

Economic growth to ease, then return

When all's said and done, Australia's economy grew by 3.3 per cent over the financial year to June 2016, is expected by the Reserve Bank to grow by another 2.5 per cent to 3.5 per cent over FY2017, and is forecast to grow by an even stronger 3 to 4 per cent across FY2018.

There's no recession in sight. Of course, the economic turd could always hit the recessionary fan, but we're not even close to a recession at the moment - household wealth is at record highs, new car sales are at unprecedented highs, export volumes are about to take a leg up, and so on.

The slight lull in growth over the next year is to be expected. After four wretched years of decline, the collapse in resources construction is finally lurching towards its nadir, probably within the next twelve months, at which point we'll find that the rest of the economy is in relatively good shape, at least in the non-mining regions.

Holey moley

Now it is true that the construction workers that were rolled from resources projects into residential apartment projects will eventually need to be retrenched again.

The residential construction sector is presently operating at close to its full capacity - putting upwards pressure on trades and materials costs - but in all likelihood by 2019 there will be fewer persons working in the residential construction industry than there are today.

The housing construction boom is going like the clappers at the moment, but that can't go on forever.

There's nothing too surprising about that, we've literally know about this for years. And fortunately, contrary to appearances, government heads are not quite as stupid as it often seems.

Infrastructure projects - fiscal echo-boom

Australia has very low public debt and a AAA rating, and as such behind the scenes Turnbull's Coalition government is quietly beginning to borrow like fury at near-record low yields (while the more widely reported budget deficit steadily improves).

As such, a range of infrastructure projects will be rolled out around the country in due course, the prevailing challenges in turn offering new opportunities, as they so often do.

We do know from the recent Infrastructure Audit paper that the expenditure will inevitably be targeted at capital cities where the longer term benefits are more assured (the news for downtrodden resources regions is admittedly far less positive):

"Within the capital cities, the location of new development and population growth will be critical. 

While the cost of providing new infrastructure in ‘greenfield areas’ is substantial, the cost of retrofitting or augmenting some infrastructure (for example transport links in tunnels) in established areas can also be high. 

With a few exceptions, the population case for expanding infrastructure networks in regional areas is less obvious. Arguments for investment in infrastructure in those areas will be driven more by social considerations."

Will the expenditure will be efficiently allocated and targeted? Of course not! It never is! But it will add to domestic demand, keep employment and the economy growing, working together with the associated multiplier effect.

The wrap (NZ to tighten immigration)

Overall, a few hundred Kiwis have dripped back home here and there, but this won't make any significant difference to Australia's economy either way, with population growth likely to track at ~350,000 per annum. 

As commodity exporters hoping to benefit from a recent rebound in prices (from seriously depressed dairy prices in New Zealand's case), there are many similarities between the two countries.

Both Australia and New Zealand have recently been running relatively high immigration programmes, both of which have been increasingly geared towards Asian migration, and particularly international student and education arrivals from China and India.

However, New Zealand has recently tightened its skilled migration policies, and the NZ Treasury noted in its Budget that it expects to wind annual immigration all the way back down from 70,000 to just 12,000 per annum over the next few years. Indirectly, then, perhaps a small boon for Australia.

There is zero chance of Australia proposing such a policy under the incumbent leadership, and it's even highly doubtful that New Zealand will deliver such a result.

As for the 'recession' we've been hearing so much about for all these years, well, I'm still not holding my breath (yes, it's probably quite a lot different outside Sydney and Melbourne).