Archive | Economy

Migrant tide turning?

You could sense an almost imperceptible turning of the tide: the net inflow of migrants slipped by 47 for the year in the rolling 12-month count released by Statistics NZ on Friday.

After 3 years of substantial rises every April from a negative 28 in 2013 to a gain of 2424 and up by 500 more in each of the next 2 years, the flow stopped.

The change occurred in Auckland too – up another 1788 in April, but that was only 92 more than in April last year; the previous April the rise had been by 352. Auckland was up another 4282 over 12 months to a net inflow of 35,864, but that annual growth was down from 5476 the previous year.

It becomes a political question: the Government has 3-plus years of economic growth from the migrant tide in the bag, and that growth will continue. And although the Government’s not the dictator of personal travel preferences, will an easing of the inflow in the 4 months to the election change public perceptions that record immigration has been a highly negative influence?

The immigrant flow rose again, as it’s done every April since 2012, this time by 261 to 8637. The emigrant flow had been decreasing, but this April it rose by 308 to 5231.

The immigrant flow for the year rose by 5110 to 129,779 – that’s over 45,000/year more than in each of the 3 years 2010-12, and a 3-year supply in 2 years. On the other side of the equation, emigration peaked at 87,813 in 2012 and slumped to about 57,000 over the last 3 years. In the latest 12 months, it was 57,894, up by 1325 on the previous year.

The net inflow in April was 3406 (3453 the previous April), and the net inflow for the year was 71,885 (68,110 the previous year).

Australia & the 5 big inflows

Exits to Australia peaked at 53,904 in the August 2012 year, and the net outflow was running at around 40,000 in that period. Now the flow each way is about 24-25,000 – in the latest 12 months, 24,680 out & 25,460 in for a net gain of 780, down from 1721 the previous year.

The other 5 big net inflows are from China, India, the Philippines, the UK & South Africa.

For the 12 months to April, the net inflow from China was up at 10,225 (9615 the previous period), India’s was sharply down at 7792 (12,218), the Philippines was down at 4532 (5151), the UK was well up at 6439 (3891) and South Africa was also well up at 4749 (2730).

NZ citizen moves

The net outflow of NZ citizens was up in April compared to the 2 previous years, but nowadays you’re looking at very small numbers – 1025 in April (2067 in, 3092 out; the net outflows the previous 2 years were 960 & 969). For the year, the net outflow continued to slide, dropping from 3560 to 1406. In 2012 that outflow was a net 39,491; it dropped by 5000, then 20,000, in the next 2 years.

The annual inflow of non-citizens, at 97,810 in the last 12 months, was 36,000 more than in 2012. 24,519 non-citizens departed, the highest annual figure since 25,825 left in 2012. Net immigrant numbers have grown from a low of 32,416 in the April 2010 year to 73,291 in the latest 12 months.

For Auckland, arrivals have been up by 5000 in each of the last 2 years, rising from 47,868 to 52,870 to 57,885. Departures have been stable in a range 21,288-22,021. The net inflows to Auckland over those 3 years were 26,106, 31,582 & 35,864.

Attribution: Statistics NZ tables.

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Maiden flight over Shanghai portends new trade shifts

A week after being installed as US president in January, Donald Trump ordered a review of 2 aircraft purchases – fighter jets from Lockheed Martin Corp and Air Force 1 presidential aircraft.

The price of the Lockheed F-35s has dropped – probably wisely given a Bloomberg report that Mr Trump preferred a Boeing competitor – and Mr Trump appears to be getting along fine with Boeing.

Both companies fit into Mr Trump’s ‘Make America great again’ & ‘Buy American’ campaigns. Still, he & his country might like to consider a newcomer to aircraft manufacturer, at least for passenger planes: the great currency manipulator, China.

State-owned Comac (the Commercial Aircraft Corp of China Ltd) gave its C919 short-medium-range commercial trunk airliner its maiden flight over Shanghai on Friday. The plane’s all-economy-class layout has 168 seats, hybrid class 156 seats, with a single aisle. The basic version is designed to cover a range of 4075km, the enhanced version 5555km.

Comac has designed the C919 as a direct competitor for Boeing’s 737 and the European Airbus A320. The one other potential competitor, Mitsubishi Aircraft Corp of Japan, said in January it had pushed first delivery back from mid-2018 to mid-2020 for its much smaller (78- & 92-seat versions) MRJ (Mitsubishi regional jet).

I happen to think the US has been a far greater currency manipulator for far longer than China, and that it’s also been a trade bully since the time of the Boston tea party in 1773. Neither of the Asian aircraft developments had anything to do with Mr Trump in their evolution, starting well before his elevation, but the trade-pressuring president might like the price tag of the C919, put at $US50 million – under half the price of the Boeing 737 or Airbus A320.

That’s especially so if the US Federal Reserve starts to raise its funds rate, which would have an immediate, sharp impact on US Government debt.

China is also looking at African nations as buyers of its new aircraft which, in economic relationship terms, would raise the profile of the China-sponsored Brics (Brazil, Russia, India, China & South Africa). And it would naturally look to Asia for buyers.

It’s the kind of economic event that carries far greater weight than tough political talk because it offers a concrete alternative for trade, leads to more value-creating innovation & research and – whether wall builders like it or not – advances trade and spreads wealth.

It’s akin to a sister venture of the revived Silk Road across Asia to Europe and the new Maritime Silk Route, which will run around to several new Chinese-financed ports & rail links along the north-eastern African coast, portending greater international networks.

BBC, 5 May 2017: China’s first big passenger plane takes off for maiden flight
Bloomberg, 17 February 2017: How close to Trump is too close for Boeing?
Bloomberg, 27 January 2017: Trump’s Pentagon chief orders F-35 jet, Air Force 1 review
Bloomberg, 20 October 2014: Mitsubishi Aircraft unveils Japan’s first passenger jet
Comac, C919
Mitsubishi, 23 January 2017: MRJ’s latest development status

Earlier stories:
1 May 2016: Propbd economic update Sun1May16 – Rethinking boundaries, Silk Road unity
World property T2Jun15 – Stepping stones across Central Asia

Attribution: Company website, BBC, Bloomberg, Mitsubishi.

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Fed holds funds rate

The US Federal Reserve’s open market committee stuck overnight to the 0.75-1% target range for its federal funds rate.

In its statement issued this morning, the US central bank said: “The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labour market conditions and a sustained return to 2% inflation.”

The committee said it would maintain its policy of reinvesting principal payments from its holdings of agency debt & agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, “and it anticipates doing so until normalisation of the level of the federal funds rate is well under way. This policy, by keeping the committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.”

Link to full statement: Federal Reserve issues FOMC statement

Attribution: Bank release.

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Reserve Bank releases capital adequacy issues paper

The Reserve Bank published an issues paper today on regulation of banks’ capital adequacy.

It’s seeking feedback by Friday 9 June and will follow up with detailed consultation documents on policy proposals & options for each of 3 components later this year, with a view to concluding the review by the first quarter of 2018.

Deputy governor Grant Spencer foreshadowed the broad-ranging capital review in March, in a speech in which he compared the average housing risk weights of large banks in 6 countries.

New Zealand was clearly the most heavily weighted towards housing at 28.3%, followed by Australia at 23.5% (and its bank overseers also tightening the reins), then a long way back to Denmark 13.9%, the UK 11.7%, Canada 7.2%, Sweden 6.8%.

The Reserve Bank aims to identify the most appropriate capital adequacy framework, taking into account experience with the current framework & international developments.

The review will focus on the 3 key components of the current framework:

  • The definition of eligible capital instruments
  • The measurement of risk, and
  • The minimum capital ratios & buffers.

Paper sets out 2 sides

In its issues paper summary, the bank said it recognised the need to balance the benefits of higher capital against the costs, but set out 2 sides to the argument: “It is expected that a higher level of capital would reduce the probability & severity of bank failures and would smooth out credit cycles.

“But banks typically argue that capital is a costly source of funding and that if they had to seek more of it they would need to pass on costs to customers, leading to reduced investment & growth.

“There has been debate about the extent to which these costs reduce national welfare. In one view the capital levels of banks are inefficiently low because of implicit government guarantees of creditors or other incentives. Raising the minimum capital requirement restores efficiency by reversing the implicit subsidy to bank shareholders, and in this way improves overall welfare.

“A growing number of academics, most notably Anat Admati from Stanford University & Martin Hellwig from the Max Planck Institute for Research on Collective Goods (as well as some regulators) have argued that the costs to society as a whole of higher capital are very low and that capital requirements should be much higher than they are now.

“These authors are associated with the ‘big equity’ view and are distinguished by the extent to which they see significant increases in capital as being possible without net negative economic impacts.

“Empirical studies have attempted to quantify the costs & benefits of increasing capital requirements, and to determine the optimal capital ratio which has the greatest net benefit. In the more mainstream studies the Reserve Bank has considered so far, a typical optimal ratio is about 14%, but estimates do vary widely (the range is roughly 5-17%). The Reserve Bank will continue to review & assess these studies, but also welcomes the views of submitters on this issue.”

The bank said that, at this early stage of the review, it hadn’t formed a view on the final calibration of capital requirements, but said it was likely to take into account the studies it had seen, as well as empirical evidence.

Review of the capital adequacy framework for registered banks
Grant Spencer’s March speech

Attribution: Bank release.

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Joyce lifts infrastructure intentions and talks new operating mechanisms

New finance minister Steven Joyce (pictured early in his career as a sod-turner) looks to have increased the annual allocation to capital infrastructure spending from $900 million to $4 billion for the 2016-17 financial year, with the promise of upping the budget for the following 3 years by $4.3 billion.

Mr Joyce took over finance from Bill English in December, in the reshuffle following Mr English’s appointment as prime minister. The country goes to a general election on 23 September

Under the more conservative English programme, the allocation to capital infrastructure over the next 4 years was $900 million/year. Mr Joyce said yesterday the focus would be on the infrastructure that supports growth, and those annual allocations would rise to $2 million in the 2017-18 financial year and $2.5 billion in each of the following 2 years.

Both the Property Council & Infrastructure NZ focused on the $11 billion figure Mr Joyce waved in front of them, which included the $3.6 billion already budgeted.

Property Council chief executive Connal Townsend said a lot of the country’s infrastructure was at the end of its useful life and he expected asset replacement would feature prominently in the Budget: “Government’s announcement is a recognition that houses & commercial properties do not exist in isolation but need to be supported by infrastructure such as roads, schools & hospitals….

“Under-investment in infrastructure creates significant deadweight losses for the wider economy. Property Council is pleased that Government recognises this. Infrastructure spending must be seen for what it really is. It is an investment in our cities and a productive input into the wider production process, rather than a mere cost.”

Infrastructure NZ chief executive Stephen Selwood said: “This is a massive increase and the largest capital investment commitment by any government since the 1970s. But it must be said that New Zealand’s growth challenge is the highest it has ever been, and meeting population demands requires the services for a city larger than Nelson to be added every year.

“Added to the growth challenge is New Zealand’s historic under-investment in infrastructure. The reality is that it would not be difficult to spend $11 billion in 2017 alone.”

Mr Joyce said: “We are growing faster than we have for a long time and adding more jobs all over the country. That’s a great thing but, to keep growing, it’s important we keep investing in the infrastructure that enables that growth.”

“We are investing hugely in new schools, hospitals, housing, roads & railways. This investment will extend that run-rate significantly, and include new investment in the justice & defence sectors as well.”

Mr Joyce said the budgeted new capital investment would be added to the investment made through baselines & the National Land Transport Fund, so the total budgeted for infrastructure over the next 4 years would be about $23 billion.

He said the Government wanted to extend that further, with greater use of public-private partnerships and joint ventures between central & local government & private investors.

“As a country we are now growing a bit like South-east Queensland or Sydney, when in the past we were used to growing in fits & starts. That’s great because we used to send our kids to South-east Queensland & Sydney to work, and now they come back here. We just need to invest in the infrastructure required to maintain that growth. Budget 2017 will show we are committed to doing just that.”

Mr Joyce will give details of the initial increase in the May Budget.

Attribution: Ministerial release.

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Top 10 highlights how tiny returns to regions are compared to tourism tax earnings

Viewed separately, Top 10 Holiday Parks’ rebranding and Acting Tourism Minister Nicky Wagner’s happy clapping over increased tourism spending are coincidental positives.

Ms Wagner said, to cheer the sector up: “An extra $5.5 million has been allocated to the Regional Mid-sized Tourism Facilities Grant Fund to help regional communities respond to visitor growth through new tourism infrastructure.”

Along with Auckland mayor Phil Goff’s advocacy of a bed tax – which I think is not rational – the tourism sector has been trying to cajole the Government into handing over more money to support the rising influx of tourists.

Top 10 added some figures yesterday which made the Government’s responses to the alms requests look even more pitiful, and make you wonder why an irksome tax targeting a small percentage of the whole sector should even be considered.

Top 10 has 47 holiday parks (camping grounds in old parlance, but this group was formed in 1983 to raise the standard & profile). Top 10 chief executive David Ovendale said yesterday New Zealand holiday parks currently generate 7.7 million guest nights/year, representing 20% of all commercial guest nights in the last year. The split nationally is 34% international visitors, 66% domestic, but Top 10’s split is almost 50:50.

“While staying at New Zealand holiday parks, visitors contribute, in terms of direct expenditure, more than $1 billion/year to the New Zealand economy. Guests staying at holiday parks contribute over $1 billion/year in direct expenditure to local communities.”

$578 million (54%) of the expenditure is from domestic travellers, the other 46% ($490 million) spent by international travellers.

The Government allocated $12 million – over 4 years – for the Regional Mid-sized Tourism Facilities Grant Fund in its 2016 Budget and announced an additional $5.5 million in March. The money Ms Wagner mentioned yesterday was the same $5.5 million.

She quoted the Ministry of Business, Innovation & Employment’s latest monthly regional tourism estimates to show tourism spending was up in all regions in the year to March 2017. The fastest growing regions were the West Coast, up 11% to $522 million, Nelson (up 10% to $343 million) & Tasman (up 10% to $303 million).

“One of the really interesting findings in today’s release is that US visitor spending continues its strong upward trend, with a national average of 22% growth over the March year 2017. Spending by US visitors is particularly strong in Auckland (up 26%).

“New Zealand’s tourism sector saw some exceptional growth in 2016 and it’s great to see strong spending figures stretching out into March this year. Tourism NZ is making a big effort to get more international visitors here in off-peak seasons, and this work is starting to gain some traction.

“The buoyant tourism market is showing some real benefits to our regional communities, but we can’t rest on our laurels.”

Top 10 has decided to segment its brand into 3 categories – premium, superior & classic holiday parks. Mr Ovendale said: “Segmentation allows us to do a better job at ensuring customer expectations & reality will be more closely aligned where it matters, on arrival at a holiday park.”

Top 10 Holiday Parks

Earlier stories:
28 March 2017: Clochemerle lives again – in Tekapo
10 March 2017: Bennett rejects councils’ tourism infrastructure funding list
28 November 2016: New mayor wants bed tax, fuel tax & new housing tax
6 November 2005: Council looks more closely at bed tax
2 March 2004: Councillors opt for bed tax report
2 March 2004: Christmas present: new tax
16 August 2002: Councillors opt for bed tax report

Attribution: Top 10 & ministerial releases.

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Net migrant inflow tops 71,900 for year

New Zealand’s net migrant inflow jumped again in March to a new record of 71,932 over 12 months.

That’s 6.4% (4300) ahead of the net inflow in the previous 12 months.

The net inflow in March has exceeded 4000 for the last 3 years, and this time round the number jumped by 600 – 14% – to 4878.

The number of migrants coming into Auckland jumped by 13% in March, from 4194 a year ago to 5267, and by 10% for the year, from 52,443 to 57,710.

The net inflow to Auckland is up 14.5% over 12 months, from 31,230 to 35,772.

That means 49.73% of the whole net inflow over the last year has made Auckland the destination.

Statistics NZ said migrant arrivals in the last 12 months, 129,518, were a record, while departures were up by 1100 over the previous year to 57,586 after 4 years of declines.

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Inflation the highest since 2011, housing index rises nationally

Statistics NZ said today the consumers price index (CPI) increased 2.2% in the year to the March quarter. That’s the biggest annual increase since the September 2011 quarter, the last quarter affected by the rise in gst from 12.5% to 15%.
Housing-related prices rose 3.3%. Prices increased for newly built houses excluding land (up 6.7%) and for rentals (up 2.3%). Newly built houses, excluding land, were up 8.0% in Auckland and 3.6% in Christchurch.
Transport prices (up 3.5%) made the second largest upward contribution. Petrol was up 12%, but partially offset by falls in other private transport services (vehicle relicensing fees).

Statistics NZ prices senior manager Jason Attewell said: “Rising petrol prices, along with the annual rise in cigarette & tobacco tax, lifted inflation. Petrol prices in New Zealand are closely linked to global oil prices, and cigarettes & tobacco taxes rise in the March quarter each year.”
For the March quarter, CPI inflation rose 1%, following a 0.4% rise in the December quarter.
Rents increased 0.8% in the quarter as 84% of the sample showed no price change. Auckland rents showed a 0.7% rise.

Auckland house price index still high, rising nationally

Statistics NZ’s index on house purchase prices in Auckland rose sharply from a 5.9% annual gain in the first quarter of 2015 to peak in the third quarter with an 8.5% rise, dropped to a 7.2% gain in the December 2015 quarter then climbed again over the next year to 8.2% in the December 2016 quarter. In the year to the March 2017 quarter, the gain was less, but still 8.0%.

Nationally, the house purchase price index has been rising – with occasionally lower gains – since the second quarter of 2014, when the gain was 4.6% over the same quarter a year earlier.

In the March 2016 quarter, the national gain was 5%/year. Since then, it’s climbed to 5.6%, 6.3%, 6.5% and, in the latest quarter, 6.7% compared to a year earlier.

Attribution: Statistics NZ tables & release.

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Government resets some immigration rules

Immigration Minister Michael Woodhouse announced a package of changes yesterday “designed to better manage immigration and improve the long-term labour market contribution of temporary & permanent migration”.

It amounts to cutting New Zealand’s cloth exactly to measure, prescribing precise requirements, instead of importing too many people with nowhere to go. What NZ Inc ought to have been doing through the immigration spike of the last 3 years, and what it ought to be doing now, is to present a strategy to receive newcomers which would entail jobs & homes outside Auckland. Instead of chasing builders to Australia at the last slump, NZ Inc would have thought about smoothing construction needs. Government-sponsored home construction is one option. Instead, as NZ First leader Winston Peters said yesterday, the changes amounted to “tinkering”.

Mr Woodhouse said: “The Government is committed to ensuring inward migration best supports the economy & the labour market. It’s important that our immigration settings are attracting the right people, with the right skills, to help fill genuine skill shortages and contribute to our growing economy. That is why we are making a number of changes to our permanent & temporary immigration settings aimed at managing the number and improving the quality of migrants coming to New Zealand.”

Changes to permanent immigration settings include introducing 2 remuneration thresholds for applicants applying for residence under the skilled migrant category, which would complement the current qualifications & occupation framework.

“One remuneration threshold will be set at the New Zealand median income of $48,859/year for jobs that are currently considered skilled. The other threshold will be set at 1.5 times the New Zealand median income of $73,299/year for jobs that are not currently considered skilled but are well paid.

“The skilled migrant category points table, under which individuals claim points towards their residence application, will also be realigned to put more emphasis on characteristics associated with better outcomes for migrants. Collectively, these changes will improve the skill composition of the category and ensure we are attracting migrants who bring the most economic benefits to New Zealand.”

The Government is also proposing a number of changes to temporary migration settings to manage the number & settlement expectations of new migrants coming to New Zealand on essential skills work visas.

The changes include:

  • The introduction of remuneration bands to determine the skill level of an essential skills visa holder, which would align with the remuneration thresholds being introduced for skilled migrant category applicants
  • The introduction of a maximum duration of 3 years for lower-skilled & lower-paid essential skills visa holders, after which a minimum stand-down period will apply before they are eligible for another lower-skilled temporary work visa
  • Aligning the ability of essential skills visa holders to bring their children & partners to New Zealand with the new skill levels
  • Exploring which occupations have a seasonal nature and ensuring that the length of the visa aligns with peak labour demand.

Mr Woodhouse said: “I want to make it clear that where there are genuine labour or skills shortages, employers will be able to continue to use migrant labour to fill those jobs. However, the Government has a Kiwis-first approach to immigration and these changes are designed to strike the right balance between reinforcing the temporary nature of essential skills work visas and encouraging employers to take on more Kiwis and invest in the training to upskill them.

“We have always said that we constantly review our immigration policies to ensure they are fit for purpose, and today’s announcement is another example of this government’s responsible, pragmatic approach to managing immigration.”

Public consultation on the changes to temporary migration settings closes on 21 May, with implementation planned for later this year.

Changes to better manage immigration
Speech outlining the Government’s plan for immigration
Pathway to residence for some South Island temporary migrants

Attribution: Ministerial release, my observation.

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Hamilton council seeks buyer to take innovation park to next stage

Hamilton City Council has hired Deloitte to look for an investor to take over its Waikato Innovation Park Ltd subsidiary, 17 months after getting a masterplan done for its expansion.

The innovation park has 46 tenants working in 4 buildings on 17ha leased from Waikato-Tainui commercial arm Tainui Group Holdings Ltd at Ruakura, and the masterplan Beca Ltd produced for the council in November 2015 projected growth from the present $25 million value to another 12 buildings & $180 million value in 20 years.

The park has a workforce of 560, and the masterplan showed how that number could rise to 2500. Gross turnover of businesses at the park rose 42% last year, from $300 million to $427 million, and the park’s operations are self-sufficient, but chief executive Stuart Gordon said the council couldn’t divert from its other infrastructure priorities the investment needed for the park to grow.

The council opened the park in 2004 with the aim of clustering businesses to help drive economic growth by researching & developing technology in the environment, food & beverage, ICT & agritechnology sectors. The council provided $4.4 million in equity, Government grants totalled $9.95 million and the WEL Energy Trust provided $2 million at an early stage. The park company is 100% owned by the council, and it owns 70% of NZ Food Innovation (Waikato) Ltd. Callaghan Innovation owns the other 30% of that venture.

The council provides its innovation park as providing “a dynamic business campus where collaboration between business & research organisations drives commercial growth for our resident companies”.

The park’s immediate neighbours in the Ruakura innovation precinct are AgResearch and the NZ Institute for Plant & Food Research Ltd, and near-neighbours include Waikato University, Dairy NZ & NIWA (the National Institute of Water & Atmospheric Research).

Council special projects executive director Blair Bowcott said the council had fulfilled its role of establishing the park and getting it to critical mass, “but now it’s time for us to step out and for someone else to come in.

“We believe the park probably needs a minimum of $10-15 million of equity injection now to grow. Whilst the city could afford that, the city has demands which are of a higher priority.”

The Government has approved selling, and the return will be spread across the council’s core business. Protections have been put in place to prevent the buyer from veering from the masterplan.

“Investors will be buying the park’s assets at the latest independent valuation. They’ll be expected to invest a total of about $70 million over the next 20 years to achieve the park’s growth goals. We’ve contracted Deloitte, who have already been conducting best-fit analysis as part of a robust process to find the right investor.

“We’re looking for investors who can truly visualise the masterplan for the park and will retain the makeup of our tenants who are technology-based, driven by innovation and export-focused.”

Waikato Innovation Park
Masterplan, November 2015

Earlier story:
22 December 2014: Tetra Pak signs up for new Innovation Park HQ

Attribution: Council releases, masterplan.

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