New Zealand’s unemployment rate is expected to climb to 5.3 per cent by the end of June, its highest level since 2016, highlighting the continued strain on the labour market following last year’s recession and a sluggish economic recovery.
The anticipated increase from 5.1 per cent in the previous quarter reflects ongoing job losses and minimal hiring activity. Economists estimate the economy may have shed up to 40,000 jobs over the past couple of years, with the recovery yet to make a meaningful impact on employment.
“We expect the unemployment rate to rise, as very modest growth in the labour supply meets a small contraction in employment,” said ANZ senior economist Miles Workman, as reported by RNZ. He noted that many firms had been “labour hoarding,” retaining staff in hopes of an economic rebound. However, that optimism may be waning.
“If a recovery in economic momentum doesn't do the heavy lifting when it comes to 'right-sizing' firms' labour input, a further reduction in headcount may be needed,” he added.
Westpac senior economist Michael Gordon highlighted that young people are among the worst affected. “As the economy cooled off, this group has found themselves out of work again or are struggling to get into work in the first place,” he said.
ASB senior economist Mark Smith pointed to falling job advertisements, continued layoffs, and fewer people actively seeking employment. “Earlier falls in hiring and more competition for jobs is expected to continue to deter some candidates,” he said.
Annual wage growth is expected to remain just above 2 percent, with private sector labour costs likely rising only 2.3 percent in the June quarter—a four-year low. While the cooling wage growth may help reduce inflationary pressure, it also tightens household budgets.
“Wage inflation can be considered broadly consistent with CPI inflation around target,” Workman noted. “But given we're a decent clip from the labour market entering inflationary territory, disinflation pressures stemming from the labour market are set to continue for a while yet.”
With the labour market showing persistent weakness and inflation softening, economists say the Reserve Bank of New Zealand is likely to respond with a rate cut later this month.
“Downside risks to medium-term inflation are growing given the soft labour market and dimming global outlook,” Kiwibank economists said in a recent commentary. “We expect the RBNZ to cut the cash rate by 25 basis points at the August meeting. And they'll need to go to 2.5 per cent eventually.”
As joblessness rises and wage growth slows, the pressure is building for monetary policy to help support households and reignite momentum in the labour market.