Unemployment expected to rise again
Tight monetary policy continues to weigh on New Zealand’s economy, leaving growth stagnant for the past two years, according to Miles Workman (pictured above), ANZ senior economist.
“The sails are furled and the ship stranded on the rocks,” Workman said, noting that labour market conditions remain challenging as inflation-correcting policies take a toll on jobs and confidence.
ANZ expects the unemployment rate to rise from 4.6% to 4.9% in Q3, aligning closely with the RBNZ’s forecast of 5%.
Mixed signals in employment and participation
Employment data has been inconsistent, with HLFS employment growing by 0.4% in Q2, despite monthly job figures indicating a decline. Annual job growth continues to trend downward, with filled jobs turning negative for the first time since the Global Financial Crisis.
ANZ forecasts employment growth will slow to +0.2% in Q3, signaling weak demand for labour.
The labour participation rate is also expected to dip to 71.4%, down 0.3 percentage points from Q2. However, Workman noted that participation can be volatile.
“A sharper fall in participation could ease the rise in the unemployment rate, all else being equal,” he said.
Migration eases labour supply pressure
While migration initially increased labour supply, weak demand for workers is now the main driver behind the loosening labour market. A 0.3% rise in the working-age population is expected to add to labour supply, but reduced job opportunities mean the pool of available workers may shrink.
Wage growth slows as firms regain bargaining power
ANZ predicts private sector wage growth (labour cost index, including overtime) to slow to 0.7% q/q, with annual growth falling from 3.6% to 3.4%. Average hourly earnings growth is also expected to decline from 4.0% to 3.0% year-over-year.
“Wages tend to lag behind labour market conditions, which themselves lag economic activity,” Workman said.
With workers losing bargaining power, wage growth is likely to decelerate further in coming quarters.
OCR cut expected in November
The Q3 labour market report will be a key factor in the Reserve Bank’s Nov. 27 Monetary Policy Statement.
Markets are already pricing in a 50-basis-point cut, with a 25% chance of a 75bp cut.
However, ANZ cautions that a 75bp reduction is unlikely unless the unemployment rate significantly surpasses expectations.
“A 75bp cut is typically reserved for major economic events or surprises,” Workman said. “It would take a much lower unemployment rate than the RBNZ’s forecast of 5.0% to prevent a 50bp cut, while a higher rate would likely strengthen the case for a 75bp cut.”
Read the ANZ report in full here.
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