Liam Tan: Is New Zealand's population growing too fast for our economy?

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Economy is made up of people.

It's not rocket science, but it's easy to forget if you spend too much time on percentages and graphs.

So there's a lot in New Zealand right now
Should the people in it mean something more than they did a year ago?

It's hard to overstate how fast the population grew in 2023 – we added 145,000 more people.

This is a provisional figure, but if the figures are revised by NZ (which they will be), recent trends suggest it will be revised upwards.

On an annual basis, this is the largest nominal increase we have seen in our history. This represents a growth rate of 2.8 percent.

There may have been a rapid percentage increase through the colonial era, but in modern times, it is unprecedented. We managed a population growth of 2.5 percent in 1962 at the height of the post-war baby boom. We reached 2.2 per cent at the peak of the John Key government's immigration boom in 2016.

That growth rate puts New Zealand in the same ballpark as some of the fastest-growing countries in the world, mostly found in sub-Saharan Africa.

At 2.8 percent, we sit above Tanzania and Mozambique, but below Zambia. Except that our names have better consonants, we have nothing else to compare with these countries.

They are, frankly, very poor.

People get very animated when they see New Zealand sitting next to sub-Saharan African countries in the economic league table.

There was a stir last year when the IMF predicted that New Zealand's 2024 GDP growth rate would be the second worst in the world after Equatorial Guinea.

Of course, there are some contexts that make comparisons like this a bit silly.

In the above case, New Zealand's projected growth (0.8 percent) is statistically far behind that of Equatorial Guinea (minus 8.2 percent) than other developed countries (which have experienced lower growth this year).

We were the first developed country to loosen interest rate brakes to cool our economy and reduce inflation.

Equatorial Guinea – as you can imagine – has very serious problems to deal with (if for whatever reason you're feeling more cheerful about the state of the world, google them yourself).

The same is the case with population growth. The comparison with African countries is accurate and descriptive, but limited once you add a bit of context.

Sub-Saharan countries all have very high birth rates, and this has a lot to do with women's poverty and education rates.

Meanwhile, our birth rate, like most of the developed world, is very low and falling towards negative territory.

Based on births minus deaths, we added 19,100 new Kiwi babies last year. Residual population growth is down to an unprecedented immigration boom.

As always, our nearest neighbor and cultural friend, Australia, provides the most apt comparison. Australia also opened its borders after the pandemic to address labor shortages fueling domestic inflation.

Australia saw a net gain of about 625,000 people in the year to November. This is a growth of 2.4 percent.

So let's win! But do we want to? Is the current growth rate too high? Has it started to fuel inflation now? Or is it the only thing that sustains our economy?

How much worse will already sluggish GDP growth be if we don't pump record numbers of new consumers into our economy?

In Japan (another comparison) they never liked immigration much. But they have some of the lowest birth rates and aging populations in the world.

Japan's population shrank by nearly half a million people last year. It officially entered recession last week.

Its two consecutive negative quarters put the annual growth rate at minus 0.4 percent. That's worse than us (though still shy of Equatorial Guinea).

On balance, I think we should be grateful as a nation that immigration can be used as a lever to address labor shortages and stifle growth.

That doesn't mean we should rely on it. Net migration gains have offset labor shortages over the past 18 months.

If the additional economic activity provided by immigrants is not productive it will also be inflationary. Suddenly we're worried about what population growth means for mortgage rates.

Ultimately, we need to ensure that the skills immigrants bring increase the productive end of the economy and that we invest the extra revenue they bring in infrastructure.

This is easier said than done. Changing immigration policy is easy, but the results of those changes are not always easy to predict.

Every number in the migration statistics made a big and bold choice, taking a risk on the New Zealand economy and building their lives.

Meanwhile, our economic conditions can change rapidly. As that sector slows down, we'll suddenly find a lot of construction workers, but we still need workers in a lot of specialized fields.

Prime Minister Christopher Luxon observed that what we need is more migrant capital and plans to invest it in business and housing.

He NZ First may certainly find it hard to get past policy changes.

But regardless, this issue needs urgent attention. The post-pandemic wave may fade but the importance of immigration policy to New Zealand's future will not.