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Data Flash External Migration And House Sales

Data Flash (New Zealand) External Migration And House Sales - March 2002

Result: Net migrant inflows rose to a new high last month and tourist arrivals rebounded very strongly after a weak February. House sales have continued to rise but are now likely to be close to their cyclical peak.

Implication for markets: We think that migrant flows are tracking broadly in line with RBNZ projections. We expect the RBNZ to hike the OCR by 25bps at the next meeting on 15 May.


Migration data for the first three months of this year has shown a continued rise in gross migrant inflows and a stabilisation in gross migrant outflows. The net inflow in March (3760 in seasonally adjusted terms) is the strongest in at least the last 40 years, although the inflows during the early 1970s were more significant in proportion to the size of the prevailing population.

However, provided that net migrant inflows begin to ease back over coming months, as we expect, the data remains broadly consistent with the RBNZ's March Monetary Policy Statement assumption that the annual net inflow will peak at around 30,000 people over the course of 2002. The balance of risks is that this assumption is exceeded mildly if migrant inflows are slower to ease than we currently project.

The positive impact of the net migrant inflow - equivalent to 0.8% of New Zealand's population - on the demand for housing and consumer durables, with consequent flow-on impacts on inflation, is one of the key factors underpinning the Bank's decision to withdraw monetary stimulus earlier than most other central banks.

Other data released today shows that the number of house sales increased sharply in March. But with interest rates now rising, and expected to rise further over the remainder of this year, we think that housing market turnover is close to peaking. In the past, activity has not been sustained at current levels. However, activity in the construction sector is likely to continue to rise for at least the next six months.

After a surprisingly weak February, tourist arrivals rebounded strongly during March and have now returned to their pre-11September trend. To some extent, the rebound may have been driven by the timing of Easter, which began in March (rather than in April as in 2001). However, in our view, the tourism sector is set to continue to be one of the key drivers of New Zealand's economic growth over the period ahead.

We continue to expect the RBNZ to raise the official cash rate by 25bps to 5.5% at the 15 May Monetary Policy Statement. The strengthening NZD - now 3% above the RBNZ's March forecast for H2 2002 - is contributing to the withdrawal of monetary stimulus. In our view, on the basis of current information about the likely path of the economy and inflation, this makes a 50bps hike unnecessary. At present, the market is pricing around 40bps of tightening for 15 May.

Key points

Adjusting for seasonal effects, a net 3,760 people migrated to New Zealand in March, taking the annual inflow to 25,635. This compares with an annual outflow of 12,600 in the preceding year. To put this in perspective, the turnaround in migrant flows over the past year is equivalent to 1.0% of the country's population.

The number of tourist arrivals rose 12.6% in March to be 14.5 % higher than a year earlier. Inflows from Europe were particularly strong in March compared with a year earlier. Inflows from Australia were also strong, and may have been influenced by the timing of Easter which began in March (Easter began in April in 2001).

The number of short-term departures by New Zealand residents rose 11.9% in March to be 11.0% higher than a year earlier. The timing of Easter is very likely to have impacted on this estimate.

The number of house sales rose 6.2% mom in March to be 46% higher than a year earlier. The number of house sales was 18% above the historic average but remains 7% below the peak level seen during the mid 90s boom.

The median house price in March was unchanged from last month at $186,000. However, the three-month average is 4.7% higher than a year earlier. If the same price is maintained in April, the three-month average will move up to 6.2%.

Darren Gibbs, Senior Economist

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