We’re currently transitioning from boom to bust – again!

The current immigration boom peaked in the year to October 2023 with New Zealand gaining a record 136,000 new residents, according to Stats NZ.

That’s the highest on record by some margin. In the long boom of the John Key years (2014-17) we peaked at around 64,000 net gain

That puts things into perspective when we say that the migration rate has eased since last October to just “67,000″ for the year to July.

But things have turned dramatically and the arrivals rate is now dropping so quickly that the economy won’t know what has hit it by this time next year.

“We’re forecasting annual net migration to slow to zero for the 2025 calendar year (with the monthly figures likely to turn to net outflows by early next year),” Westpac senior economist Michael Gordon wrote after the release of data last week.

Gordon notes that the pace of net migration has cooled significantly compared to last year when net inflows were running at around 10,000 people a month on average.

“Most of the slowdown was driven by a cooling in the number of foreign arrivals, following a surge in 2022-23 after the country reopened its borders. Arrivals are still gradually slowing month-to-month, although they remain higher than pre-Covid levels.”

We can see the trend by looking at the latest monthly figures and extrapolating forward. The seasonally adjusted net migration gain for July was just 3000, compared with a peak of 25,000 in March 2023 and 16,000 in December 2023. Arrivals are falling off a cliff.

This marked slowdown in population growth will affect the outlook for the economy’s actual and potential growth, the labour market and the expected tax take, Gordon says.

In other words, we won’t have the extra spending of a rising population to flatter our GDP figures any more.

Top-line GDP growth has been anaemic for about 18 months. If you look at it in per capita terms, it is horrible … one of the longest recessionary periods in our history.

If things haven’t felt quite as bad as the GFC or the early 90s, it is only because of the rising population. Now that rug is about to be pulled from under our feet.

So what has happened?

The departure rate of Kiwi citizens has been running at record levels in the past year.

Roughly 81,000 Kiwis departed long-term in the year to July. Just 25,000 returned, giving us a net loss of about 55,000 citizens.

That’s not a good look. When it comes to the state of the economy, people are voting with their feet.

That large loss of citizens has tended to grab the headlines around migration statistics but it has been less significant than arrival numbers, Gordon says.

However you want to cut it, more people are leaving and fewer are arriving.

“The migration figures are in line with our view that the cycle is steadily turning, reflecting the cooling economy and fewer job opportunities in New Zealand,” Gordon says.

Basically, it’s about jobs. Why would you come here if you can’t get a job? And if you’re a skilled Kiwi worker or a recent graduate, why would you stick around?

Okay, we had a pandemic and that created a backlog of demand but there has been plenty of time for that to play through now.

It certainly exaggerated the peaks and troughs of the immigration cycle but the big rises and falls have been a regular part of our modern economic history.

We can see in the chart below that, while most comparable economies had a weird spike around the pandemic, New Zealand’s immigration rate has bounced around more than most.

In fact, if we look at data back to 1990, there have been four major spikes in arrivals since the original “brain drain” of the 1980s.

That makes planning for all the things that governments need to invest in – housing, health, education, infrastructure – very difficult.

But to some extent New Zealand governments have themselves to blame. Too often, immigration policy changes have been used to inflate economic growth and mask more problematic structural deficiencies in the economy.

As the demographer and sociologist Professor Paul Spoonley told me last year: “There was a degree of panic in the New Zealand labour market about the loss of workers, so the demand was high.”

Labour shortages became so acute that the Labour Government – admittedly under extreme pressure from business interests – caved on its plans to run a tighter, more sophisticated immigration policy.

It will be interesting to see the impact of low net migration in the year ahead.

Will we face new labour shortages even as we deal with higher unemployment? One of the problems for politicians is that the demands of the labour market are often highly specific. It is not easy to make policy to reflect those demands exactly. Often small tweaks to policy result in outsized changes to migration rates.

There are difficulties around the timing of policy changes. Rather like monetary policy, it takes time for changes to flow through to the real economy.

It is a big deal to pack up your life and move to another country.

Policymakers are always trying to be agile and adapt policy to suit the needs of the economy. But perhaps that’s just not realistic when it comes to immigration.

That approach is reactive and leaves us perpetually playing catch-up.

New Zealand needs a long-term immigration strategy that we stick to through the cyclical ups and downs of the economy. That might mean times of labour shortage where industries are forced to confront issues around training and pay. It might mean times of labour surplus.

There’s no question we need immigration. The total fertility rate has been below the replacement rate of 2.1 births per woman since 2013.

But a path of slow, steady population growth should be the goal if we hope to follow a similar path for economic growth.

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.