past 3 years. at 70. 1 percent, the labour force participation rate is at an alltime high and the second highest among the advanced economies after iceland. v ) labour productivity growth has been particularly weak new zealand ’ s trend rate of labour productivity growth is in the bottom third of oecd countries. there are many reasons for this including : distance from markets ; size of the domestic market ; small size of most new zealand firms ; limited participation in global value chains ; and lower volumes of capital per worker. but, as with most of the advanced economies, labour productivity growth has been below its historical trend in the current expansion. in the advanced economies, the decline in labour productivity growth is due to a slowdown in the growth of investment per hour worked ( reduced capital deepening ) and lower total factor productivity growth ( tfp ). 1 in new zealand, the slowdown in labour productivity growth is mainly due to the reduced contribution from tfp – the average contribution of tfp to potential output growth in the current cycle has been less than half that of the previous two cycles ( figure 3 – tfp is a measure of how efficiently and intensively other factors of production are being utilised ). figure 3 : contribution to annual potential gdp growth in recent business cycles 4. 5 % % 1991 - 97 cycle 1998 - 07 cycle 4. 5 current cycle 4. 0 4. 0 3. 5 3. 5 3. 0 3. 0 total factor productivity 2. 5 2. 5 2. 0 2. 0 1. 5 labour 1. 0 1. 0 capital 0. 5 0. 0 1. 5 0. 5 0. 0 source : rbnz estimates vi ) the economic impact of high migration has been different from earlier cycles migration inflows affect aggregate demand and supply in the economy. in earlier cycles the short - term demand impacts ( in terms of spending and inflationary pressures ) tended to dominate the effect of increased labour supply in raising potential output in the economy. earlier periods of sizeable migration inflows, such as 2001 – 3, were quite quickly reflected in capacity and price pressures, and a strong pick - up in house price inflation. house price inflation has been accentuated by the strong migration inflows in the current cycle, but the impact on consumer price inflation has been weaker than anticipated. this more muted impact on spending is likely due to the higher proportion of younger cohorts in the migrant flows, and the fact that many migrants are returning

almost 5 percent and reached a 14 - year high as financial markets assess the implications of a possible large fiscal stimulus for economic growth, inflation and the level of outstanding us government debt. ten - year government bond yields have increased by 40 basis points in new zealand ( figure 8 ). figure 8 : 10 year government bond yields 4. 5 % differential ( rhs ) nz us 4. 0 3. 5 bps 3. 0 2. 5 2. 0 1. 5 1. 0 0. 5 0. 0 jan - 15 may - 15 sep - 15 jan - 16 may - 16 sep - 16 source : bloomberg, rbnz the factors behind the rise in us rates have increased market expectations that the federal reserve will raise policy rates at its meeting on 13 - 14 december 2016, and tighten more rapidly in 2017. prospects of stronger growth in the us and the resulting spillovers through trade, commodity prices and relative exchange rate movements should be positive for new zealand and a welcome development from a monetary policy perspective. however, while the 5 percent appreciation in the us dollar in recent weeks is helpful for new zealand exporters, the twi currently lies above its level in june 2015, despite the terms of trade being 6 percent lower and seven reductions in the ocr. as has been the case in several other countries, monetary policy has been made more challenging in new zealand by low global inflation and zero or negative policy rates in several major economies. this has put downward pressure on our interest rate structure and contributed to asset price inflation and upward pressure on the new zealand dollar. this trend may finally be turning. another major change is the 7. 8 strength kaikoura earthquake. early indicators are that reconstruction work, including by government, could be in the order of $ 3 – $ 8 billion, or around 1 - 3 percent of gdp. this is much smaller than the $ 40 billion associated with canterbury reconstruction, and would occur at a time when the domestic economy is at or near full capacity. the supply disruptions are unlikely to have a major impact on overall economic growth. some increase in construction cost inflation is likely as this is already running at 7. 9 percent in auckland and 6. 3 percent nationally due to capacity bottlenecks within the sector. increases in freight costs are also expected. at this stage these developments do not cause us to change our view on the direction of monetary policy as outlined in the november mps. we expect monetary policy to continue to be accommodative, and