Unemployment set to hold steady as fuel costs squeeze household spending
New Zealand's labour market will likely track sideways for the rest of 2026, with Kiwibank economist Alexandra Turcu (pictured) forecasting unemployment to hold at 5.3% as the fallout from the Middle East conflict continues to work its way through the economy.
Inflation may have peaked, but wage growth stays subdued
Kiwibank said the June quarter delivered "an ugly inflation print of 4.1%," but the bank believes the peak may already be behind us. Softness in the labour market is expected to keep wage growth in check, limiting the risk of a sustained wage-price spiral.
Kiwibank forecasts wage growth to "track sideways" at 2.1% for the June quarter, with the employment rate expected to print at 66.3% and participation at 70.1%.
Not all forecasters agree on how soft the labour market will get. Westpac and ASB expect unemployment to climb higher than Kiwibank's forecast when official June quarter figures land on 5 August, with Westpac picking 5.4% and ASB forecasting a steeper rise to 5.5% — both above Kiwibank's sideways call of 5.3%. Both banks pointed to labour supply continuing to outpace hiring demand as the key driver.
Kiwibank's own outlook remains comparatively more optimistic on the headline number, though it shares the same underlying concern: the war in the Middle East has disrupted what should have been a stronger recovery.
"So far, the data for the June quarter shows that Kiwi businesses are resilient," Turcu said, though business confidence dropped over the March quarter before partially recovering in June. That recovery "bodes well for the rest of the year, but could easily be derailed by the Middle East conflict re-escalating."
Household spending pulls back as fuel costs bite
June card spending data came in negative, according to Kiwibank, as temporarily lower fuel costs at the end of May failed to translate into spending elsewhere. Instead, households appear to have used the relief to save more or pay down existing debt.
Businesses, meanwhile, have largely absorbed rising cost pressures rather than passing them on through price rises, with investment and hiring intentions typically the first casualties when conditions tighten — ahead of any cuts to staff numbers or hours.
Youth exodus to Australia continues
Kiwibank pointed to a widening gap between filled jobs and working-age population growth, partly driven by positive net migration adding to the pool of potential workers faster than new roles are created. The bank noted that the proportion of young people not in employment, education or training has been trending upward, with many "finding their wings and flying across the Tasman" in search of work.
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