Kiwibank releases economic and labour market overview
As New Zealand concludes its December quarter analyses, the focus shifts from inflation to the labour market’s performance at the year's end.
Mary Jo Vergara (pictured above), Kiwibank’s economist, provided insights, noting a likely increase in unemployment rates.
“By our calculations, the unemployment rate likely lifted to 5.1% from 4.8% – the highest rate in four years,” Vergara said, illustrating the lag between general economic downturns and labor market reactions.
Employment trends and job losses
The robust employment growth experienced in 2022 and 2023 has given way to a significant reduction in workforce expansion.
Kiwibank’s observations highlighted a slowdown in hiring, aligning with broader economic contractions. The decline is evidenced by Stats NZ’s data, which showed a sharp reduction in filled positions, totaling over 30,000 net jobs lost throughout 2024.
“GDP growth averaging 0.5% per quarter during 2025 is not rapid, but it would be a marked improvement on the 0.0% flat quarterly average throughout 2023 and 2024,” Vergara said.
Participation rate and unemployment
The labour force participation rate, which had previously peaked due to high migration and economic pressures, is expected to decrease.
“We expect the participation rate to fall to 71% from 71.2%,” Vergara said, suggesting a withdrawal from the workforce by many individuals as job demands decline.
Future unemployment and economic outlook
Vergara forecasts a modest peak in unemployment at around 5.3% in the upcoming months, with expectations of a gradual economic rebound later in the year.
The recent NZIER business survey supports this optimism, indicating a slowdown in workforce reductions and a slight increase in hiring intentions among businesses.
Wage growth and inflation control
Despite ongoing economic challenges, wage growth has cooled, aiding in controlling inflation.
“We expect to see a 0.6% quarterly rise in wages, pulling down the annual rate from 3.3% to 2.9%,” Vergara said, noting the necessary slowdown in wage increases to curb above-trend domestic inflation.
Monetary policy and interest rates
With inflation nearing its target and core inflation decreasing, RBNZ is anticipated to adjust its policy to a more neutral stance.
Vergara highlighted the expected monetary adjustments: “We continue to expect a 50bp cut at the RBNZ’s first meeting for 2025, and a 25bp cut in April/May.”
The discussion now turns to how much further the RBNZ might reduce the cash rate below 3.5%.
Read the Kiwibank insights here.
