Immigration, tourism buoying New Zealand growth in uncertain times: central bank

Record immigrant and tourist numbers are driving New Zealand economic growth, but per-capita growth growth is slowing, the head the country's central bank said on Thursday.

In annual terms, net immigration was the strongest since 1860, Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler said in a published speech in the South Island town of Greymouth.

"Net permanent and long-term migration of 172,000 working age people has increased the labor supply by 5 percent since 2012. Annual potential GDP growth has more than doubled to around 2.9 percent from its 2010 trough of 1.2 percent, primarily because of this labor force expansion," said Wheeler.

Private consumption was boosted by the strong growth in migration, record tourist inflows and a rise of 11.25 percent in employment over the past three years.

"At 70.1 percent, the labor force participation rate is at an all-time high and the second highest among the advanced economies after Iceland," said Wheeler.

However, soaring house prices continued to pose a risk to economic stability and the exchange rate is "higher than the economic fundamentals would suggest is appropriate."

"Relative to the trends over the past two decades, New Zealand is experiencing stronger economic growth, lower inflation, and a lower unemployment rate - even with record levels of labour force participation. The Achilles heel of many New Zealand expansions - a large current account deficit - has not eventuated," he said.

"However, not everything is as positive. The overall expansion, now entering its eighth year, is weaker than other post-World War II expansions. GDP growth on a per capita basis has been slow and labor productivity growth has been disappointing."

Wheeler said that, in the absence of major unanticipated shocks, prospects looked good for continued strong growth over the next 18 months, driven by construction spending, continued migration, tourist flows, and accommodative monetary policy.

RBNZ forecasts last month showed annual real GDP growth of around 3.75 percent over the next 18 months, with inflation approaching the mid-point of the RBNZ's 1 to 3-percent target band, the unemployment rate continuing to decline, and the current account deficit remaining within manageable levels.

The low point for consumer price inflation, which has been tracking near zero and currently stands at 0.4 percent, had probably passed.

New Zealand would enter 2017 with considerable political and economic uncertainties.

"The greatest threat to the expansion lies in possible international political and economic developments and their implications for the global trading environment," said Wheeler.

"The main domestic risk - and one that could be triggered by developments offshore - is a significant correction in the housing market. Numerous measures indicate that New Zealand house prices are significantly inflated relative to usual valuation indicators."

The RBNZ's official cash rate is currently at an historic low of 1.75 percent, and it expected monetary policy to continue to be accommodative. Endit