The net migration outflow surged to 520 in December, with the previous month's outflow revised up to 100 (from 50 previously).

NZ recorded a migration outflow of 1,855 people over 2011, with the combination of Canterbury's earthquakes and a strong labour market in Australia underpinning the exodus, ASB economist Jane Turner says.

The allure of the Australian job market continues to motivate New Zealanders to make the move across the Tasman. Indeed, the strong pace of permanent departures to Australia shows little sign of abating, despite the recent slowdown in Australia's job market. Over the coming year, we expect a pick up in NZ job growth coupled with slower job growth in Australia will result in a decline in the number of permanent departures.

Meanwhile, permanent and long-term arrivals dipped 5.8% over the month, reversing out the previous month's increase. The slack in NZ's labour market and reduced demand for migrant workers is a contributing factor to a more subdued pace of permanent arrivals.

Overseas short-term visitor arrivals bounced 4.5% in December, following sharp declines over October and November following the end of the Rugby World Cup tournament. Visitors from Australia and China have remained firm following the RWC tourism boost. These markets will be the key source of growth in tourism over the coming year. Meanwhile, visitors from UK, US and Japan remain subdued.

Implications

With the Rugby World Cup boost to visitor arrivals now over, focus turns to the challenging conditions facing tourism operators over 2012, with subdued visitor arrivals from traditional markets such as US and Europe. However, continued growth in the number of Chinese tourists should help offset some of the decline. The elevated level of the NZD creates another headwind for tourism operators to contend with.

The net migration outflow recorded over 2011 has contributed to slower population growth, and has helped alleviate some of the pressure on the tight housing market - particularly in Canterbury and Auckland. We continue to expect migration to recover over 2012, as the ongoing recovery in NZ's labour market helps stem the steady flow across the Tasman. The pace of net outflows is yet another factor which reduces any urgency for the RBNZ to increase interest rates over 2012.