Kiwibank suggests RBNZ should take to mitigate the significant downturn in the labour market
Kiwibank economists urge the Reserve Bank (RBNZ) to act swiftly as NZ’s labour market shows a significant downturn.
Overview of current labour market conditions in New Zealand
According to Kiwibank economists, New Zealand’s labour market is facing significant challenges as highlighted in the recent December quarter report.
The Stats NZ report painted a grim picture, with the unemployment rate rising to 5.1%, the highest in four years, and labour force participation dropping to 71%.
Kiwibank’s Jarrod Kerr, Mary Jo Vergara, and Sabrina Delgado (pictured above, from left to right) highlighted the increasing underutilisation and underemployment rates, indicating a growing slack in the job market.
Deterioration in working hours and wage growth
The situation has worsened with a continuous decline in the total number of hours worked, marking the steepest annual decrease since 2009, excluding the pandemic years.
Kiwibank, which recently made significant cuts to its home loan rates, noted a 2.5% drop in hours worked in 2024, underscoring weak economic activity influenced by the Reserve Bank’s (RBNZ) aggressive rate hikes.
Additionally, wage inflation is showing signs of moderation; the private labour cost index (LCI) remained steady at 0.6% quarterly, with annual wage growth tapering to 2.9%.
Kiwibank’s stance on RBNZ monetary policy
Kiwibank economists argued that RBNZ needs to adopt a more proactive stance in monetary easing to prevent further deterioration in the labour market.
Despite inflation stabilising at 2%, they criticized the slow pace at which RBNZ is planning rate cuts, with an aim to reach a “neutral” rate of 3% only by 2026 or 2027.
“Why wait? Why muck around? That leaves conditions too tight for too long,” the Kiwibank economists said, stressing the urgency to reach the neutral rate this year to support economic recovery and avoid unnecessary job losses.
Urgent call for policy adjustment
Kiwibank is advocating for immediate action from RBNZ to alleviate the economic strains. With a cautious outlook for the second half of the year, there remains hope for recovery, provided that the central bank delivers the necessary rate relief.
Without it, Kiwibank warned of an increasing risk of further job cuts and prolonged economic hardship, underscoring the critical need for timely intervention by RBNZ to safeguard the labour market.
Read the Kiwibank commentary in full here.
