Key figures

Net migration +450 seasonally adjusted. 8,969 12 months to January

Permanent and Long Term:

Arrivals: +1.6% mom, -0.6% yoy

Departures: +6.1% mom, 25.7% yoy

Short-term Visitor Arrivals +2.0% mom, +3.5% yoy

Migration - slow migration will place less pressure on stretched housing capacity There were just 450 net new migrants over January, with departures continuing to grow strongly and arrivals figures remaining subdued. On an annual basis the pace of migration is continuing to slow. Much of the increase in departures over the past year has reflected New Zealanders heading across the Tasman, attracted by Australia's stronger job market. The recent earthquake is likely to add to this momentum, with fed up Cantabrians likely to find better job prospects abroad than locally. With the housing stock badly damaged in Christchurch, and under-building likely to lead to shortages in places like Auckland, migration out of NZ will help alleviate some of the pressure on the housing market in the future.

The Canterbury earthquake also threatens prospects for education exports, particularly English language schools. Over the past year, there has been an increase in long-term arrivals from Asia, and this has recently been matched by an increase in long-term departures which may be due to an increase in students from these countries. Over the next year, we expect the number of foreign students to decline as a result of the quake.

Short-term visitor arrivals - improving before the quake Short-term visitor arrivals increased 2% over January, following on from December's 1.4% increase, suggesting the summer tourism season was performing well before the quake. Looking at some recent trends, we are starting to see some encouraging signs in short-term visitor arrivals. Arrivals from Asia, particularly China, continue to grow strongly. Meanwhile, arrivals from the US and UK appear to have bottomed out on a trend basis, with evidence of a small increase following a long and steady decline. This is an encouraging sign, and likely to reflect improving consumer confidence in these countries (particularly the US) with households becoming more willing to increase discretionary spending. However, the devastating February earthquake throws some uncertainty on the outlook for future visitor arrivals. It will be unclear the extent tourists simply avoid Christchurch or cancel NZ trips altogether. Nonetheless, we expect to see a fall in arrivals from March, and visitor arrivals are likely to remain relatively subdued until the Rugby World Cup later this year.

Implications The slowing pace of migration will help alleviate future demand on housing. Under-building, combined with damaged and unusable housing from February's quake, will place a strain on NZ's housing supply over the next year. This will create inflation pressures down the track in the form of higher rents and construction costs. However, reduced net migration and slower population growth can help mitigate this. The relative strength of the Australian job market will continue to attract New Zealanders, particularly Cantabrians who may now be displaced as a result of February's devastating quake.

Meanwhile, the quake is also likely to reduce the number of short-term visitor arrivals and foreign students. Figures prior to the quake had been showing some encouraging signs of improvement after a challenging period following the global financial crisis. Nonetheless, we expect the Rugby World Cup to provide a much needed boost to tourism later this year.

We continue to expect the RBNZ to cut the OCR by 50 basis points at tomorrow's announcement.