Unemployment is expected to remain near a decade high, with the conflict in the Middle East weighing on early signs of economic recovery this year.
Economists at major banks forecast that the unemployment rate will either hold steady at 5.4% or edge slightly higher for the three months ended March.
ASB economist Wesley Tanuvasa said the figures would largely reflect labour market conditions before the conflict began but noted that a growing workforce and increased demand for jobs are likely to place upward pressure on unemployment.
“[The] labour market data is expected to reflect a firming employment trend and strong labour supply response, but headline numbers will likely remain weak,” Tanuvasa said.
“This is expected to push the unemployment rate up to 5.5%. Labour cost growth should remain modest.”
BNZ economist Matt Brunt said business surveys, including the Institute of Economic Research’s quarterly survey (QSBO), have indicated a decline in confidence, which is likely to translate into a more noticeable impact on employment intentions.
“The latest QSBO showed some softening in hiring intentions. However, the responses deteriorated as the month progressed … when employment intentions were much weaker and consistent with net labour shedding.”
BNZ expects the unemployment rate to reach 5.8% later in the year.
Meanwhile, Tanuvasa said the labour market recovery is now likely to be pushed into next year due to the Middle East conflict.
“We do not envisage a labour market recovery unfolding until 2027 and cite heightened stagflationary risks over 2026 given higher near-term unemployment and higher near-term inflation.”
The Reserve Bank no longer has a formal directive to boost jobs or maximise employment, but it still keeps a close eye on what’s happening in the labour market.
The financial markets currently assign a 40% chance of a 25 basis point increase in the official cash rate to 2.5%. However, most still expect a series of rapid increases from September, taking the rate to 3% by the end of the year.