Unemployment will peak at 8.1 per cent in 2022, NZIER forecasts

Wednesday, 27 May 2020

Retraining and wage subsidies may help keep official unemployment number well under 10pc, NZIER forecasts.

Unemployment is likely to peak at only 8.1 per cent and not until March 2022, according to a relatively upbeat forecast by the New Zealand Institute of Economic Research.

The forecast appears far more optimistic than the latest Treasury forecast of unemployment peaking at 9.6 per cent next month.

But principal economist Christina Leung said NZIER expected a significant 'discouraged worker effect' as people disappeared from the statistics as they gave up looking for work.

NZIER was forecasting a big reduction in employment.

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But many people who were made unemployed from the tourism sector could drop out of the jobless numbers by opting instead to undertake retraining or further education, she said.

Unemployment also tended to lag behind a drop in economic activity, she said.

'It does take some time for that reduction in economic activity to filter through into unemployment and wage growth.'

Leung said the Government's wage subsidy scheme had also been an 'insulating factor'.

NZIER forecast economic activity would remain below the levels that could have been expected in the absence of the virus right out to the end of its current forecast period at the end of 2024.

'We forecast annual growth in GDP over the next five years to average just under 1.5 per cent,' Leung said.

'That is a long way from around 3 per cent we were seeing early in 2019.'

Inflation would fall below 1 per cent this year, Leung also forecast.