Two economic reports are suggesting the economy is set to face pressures from the current Omicron outbreak and may lose significant numbers of workers to Australia.
As many as 20,000 New Zealanders may head to Australia in a year, an ANZ report predicts, just like the old days before the pandemic. Photo: AFP
The NZ Institute of Economic Research's (NZIER) latest quarterly predictions has forecast growth of 4.9 percent this year, easing to 3 percent in 2023, with economic recovery to be slowed by the Omicron outbreak and rising interest rates.
NZIER principal economist Christina Leung said the scope of the outbreak along with the conflict in Ukraine has heightened the uncertainty over growth.
"Although we continue to expect the resilient New Zealand economy to recover over the coming year, the additional challenges should weigh on the pace of this recovery."
Leung said Omicron has raised the prospect of widespread worker shortages due to illness or self-isolation hitting businesses, while surging inflation caused by supply chain disruptions and labour shortages were hitting households and businesses.
"Inflation pressures have been broad-based, as more businesses are able to pass on higher costs to customers by raising prices," she said.
The Reserve Bank's determination to counter inflation through raising the official cash rate would ripple through the economy.
"We expect the impact of higher interest rates on the economy will become more apparent later this year as households face repricing of their fixed rate mortgages and rein in their discretionary spending. Overall, these developments point to a more protracted recovery in the New Zealand economy."
The squeeze will go on many households when mortgages need to be refixed, one of the reports says. Photo: RNZ / Nate McKinnon
Worker flight across Tasman
Meanwhile, an ANZ economic report on the impact of the re-opening of borders suggested that New Zealand could lose workers overseas, especially to Australia.
"Beyond the initial pent-up demand for travel, the economic fundamentals do seem to favour a net outflow of Kiwis to Australia," the ANZ report said.
It said Australia's employment outlook seemed strong and it expected there would eventually be a reversion to the migration trend of the past decade or more of a net outflow of New Zealanders to Australia.
"Something in the order of 20,000 people a year would be consistent with previous flows when the Australian labour market was last as (relatively) strong as we're forecasting - although the actual number is highly uncertain given all the Covid-laced water that's flowed under the bridge in the past few years."
The report suggested that the past pattern of migrants from other countries offsetting the outflow to Australia might not occur, because mass immigration was not likely in the near term.
"Depending on the evolution of reopening plans, we could then see a couple of quarters of significantly negative net immigration over mid-2022, at the same time as the labour market is the tightest it's been on record."
It said that would put further pressure on an already tight labour market, but had potential implications also for housing and spending.