Insights from Westpac and ASB
NZ labour market shows cooling, with Q4 unemployment expected to rise amid economic slowdown and moderated wage growth, according to Westpac and ASB economists.
Anticipated increase in unemployment
Kelly Eckhold (pictured above left), chief economist at Westpac NZ, forecasts a modest rise in New Zealand's unemployment rate from 4.8% to 5% for the December quarter of 2024.
This prediction aligns closely with previous expectations but is slightly more optimistic than earlier forecasts of reaching 5.1%. The labour market appears to have stabilised somewhat at the end of the year, influenced by the initial effects of reduced interest rates.
Employment and wage projections
The upcoming labour market surveys are expected to reflect a slight decline in employment, continuing the trend from previous quarters.
Eckhold anticipates a 0.2% drop in employment and a corresponding dip in the participation rate, reflecting a broader cooling of the labour market as economic conditions tighten.
Moreover, wage growth is predicted to slow, with the labour cost index for the private sector projected to rise by only 0.6%, marking a decrease in annual wage growth to 3%.
Economic slowdown and inflation concerns
Nick Tuffley (pictured above right), ASB’s chief economist, echoed the sentiment of a cooling labour market, anticipating the unemployment rate to reach 5.1% – the highest in four years.
This projection is part of a broader economic slowdown that has begun to impact employment significantly, with a net loss of 30,000 jobs throughout 2024.
Tuffley highlighted that the economic downturn is likely to suppress labour demand until at least mid-2025.
Monetary policy and market adjustments
Both economists noted the Reserve Bank’s (RBNZ) cautious approach towards monetary policy adjustments.
With inflation remaining close to target but economic activity and labour demand weakening, further reductions in the OCR are expected.
Tuffley suggested another 50-basis-point cut could occur as soon as February, with gradual adjustments to follow.
Continued labour market challenges
The labour market is expected to face continued challenges into 2025, with both employment levels and wage growth likely to remain subdued.
This environment suggests a cautious approach from businesses and policymakers alike as they navigate the lingering effects of the global economic slowdown and local fiscal constraints.
Long-term economic recovery
Looking ahead, the labour force growth is expected to remain low, which may temper the peak in the unemployment rate. However, the broader economic recovery is anticipated to be slow, with a modest rebound in labour demand not expected until later in 2025.
