The prospects for keeping down the growth of ourunemployment queues have taken a turn for the worse. Late last year we werehoping that unemployment would only reach 6% at the depth of the currentrecession. A key factor in keeping the unemployment rate from blowing out was theassumption that Australia’s economy would keep chugging along and absorb muchof our surplus labour. But with Australia’s prospects suddenly looking a lotless rosy we can no longer look to our biggest neighbour to alleviate ourproblem.
Predicting New Zealand’s population, labour force andunemployment rate is difficult due to, among other factors, the volatility of populationflows into and out of New Zealand. Contributing to the volatility is that nearlya million people eligible to live in New Zealand currently reside beyond theborders of our country and tough global conditions can send these expatriates backhome. If you are unemployed you may as well be unemployed at home where atleast you can count on some family support.
After Australia, the highest concentrations of Kiwiexpatriates are in the United Kingdom and the United States where the economiesare expected to contract by up to five percent over the length of the currentrecession. Mass layoffs in these countries are likely to entice some Kiwiexpatriates back home and discourage others from going. The return of only20,000 of the one million expatriates to New Zealand in a year would add abouthalf a percentage point to our population and labour force growth rate.
Until recently we could have looked to Australia as being our labour market pressure release valve. Domestic layoffs and thereturn of expatriates would be offset by departures to Australia where the economy was expected to continue growing albeit much more slowly than recentyears. But prospects in Australia are changing rapidly. Respected forecastingagency Access Economics believes the Aussie economy shrank in the December quarter,despite the Government’s $10.4billion economic stimulus package, and predictsit will shrink again in the current quarter. Access predicts that it will be thesharpest deceleration Australia’s economy has ever seen.
Australia’s slowdown comes off the back of a slowing Chineseeconomy whose voracious demand for commodities has fuelled Australia’s booming economy. But China’s boom is quickly ending. Annual economic growth in China almost halved from 13 per cent in 2007 to 6.8 per cent in 2008. Citigroup have estimated that China’s economy shrank 0.1 per cent in theDecember quarter from the September quarter â€” its first contraction in at least16 years.
Sharply reduced employment intentions in Australia are reflected in the ANZ Bank job advertisement series. The number of jobadvertisements in Australian newspapers and internet job boards have beenfalling for eight consecutive months and dropped by nearly 10% in December 2008alone (seasonally adjusted) and by nearly 30% compared with December 2007. Althoughofficial measures of employment held up in December there was a substantialshift from full time to part time work as employers cut hours as a precursor tolaying off. Forecasters are now predicting the Australian unemployment rate torise from 4.5% to between seven and eight percent. The growing queues ofunemployed will discourage Kiwi workers from crossing the Tasman.
With a predicted rise in returning expatriates, reducedincentives to cross the ditch and domestic layoffs we are likely to see our unemploymentrate rise somewhat higher than our earlier predictions. But despite thenegatives associated with rising unemployment numbers there are a few positivesthat come from increased growth in our labour force and population. Returningexpatriates will bring back savings which they will draw down through thetougher times. The growing population will need to be housed and will drive upthe demand for accommodation. Housing consents are currently at a level whichwill not be sufficient to cope with even a modest growth in population. In thefinal quarter of last year consents were running at an annualised rate of below14,000 per annum while we need about 10,000 more than this to house our growingpopulation. The boost to population growth from returning expatriates will evenfurther tighten the market for accommodation. This could offer someresistance to the slide in property values which will in turn prop up ourpersonal wealth and consumer confidence and make us all feel a bit more comfortableabout spending.
Looking beyond the recession the expected rise in arrivalsand reduction in departures gives us an opportunity to shore up our workforcein anticipation of better times. We are entering a period of dramaticdemographic change as the baby boomers move into retirement en masse. When therecession is over, we will need a growing workforce more than ever to supportour burgeoning retired population.
John Key has expressed the need to halt the haemorrhaging ofpeople across the Tasman. He may get his wish sooner than he thought. But hischallenge is to create a New Zealand that will be attractive enough for thosethat have returned or newly settled to stay when finally the global economyrecovers.
Figure 1. Arrivals and departures of New Zealand citizens