Slowdown is slowing down

By BRIAN FALLOW economics editor

The economic slowdown appears to be easing, going by statistics out yesterday. For the second month in a row net immigration increased and for the eighth month in a row world prices for New Zealand's commodity exports rose.

There was a seasonally adjusted net inflow of 2500 permanent and long-term migrants in January, up from 1490 in December and 1050 in November, Statistics New Zealand said. That contrasts with the steadily declining net immigration for the previous six months.

But on an annual basis net immigration continued declining, to an inflow of 33,300 in the year ended January from 34,900 in December and a peak of 42,000 in June.

The Reserve Bank expects the annual tally to decline gently, reaching 20,000 by the end of next year. Other forecasts expect a more rapid fall.

On one measure we are there already: the net inflow for the past three months, if annualised, was 20,000.

The migration figures have implications for both the demand for housing and the supply of labour.

Deutsche Bank economist Darren Gibbs said that the figures seemed to show migrant inflows were falling back in line with the Reserve Bank's projections, after tracking below them in the the last quarter of 2003.

"We continue to think the underlying trend remains towards fewer net migrant arrivals, certainly compared with the 35,000 recorded during 2003. In particular, over the coming months we expect gross departures to resume their upward trend," Gibbs said.

Meanwhile, ANZ Bank's world commodity price index rose 1.5 per cent last month to be 11.5 per cent above its level a year ago.

But the stronger exchange rate cancelled those gains and in New Zealand dollar terms the index fell 1 per cent and was 7 per cent below its level a year ago.

"Commodity price strength is is one of the influences which will soften the landing for the economy as growth slows later in the year," said ANZ chief economist David Drage.

"However, export incomes are weakening as a result of the strong New Zealand dollar which, coupled with slowing population growth, is expected to increasingly undermine domestic growth in the second half of the year and into 2005."

But Drage warned that some supply factors that have been underpinning prices, such as the lingering effects of drought in Australia, were likely to fade.