New Zealand's unemployment rate 'still has further to rise'

Monday, 1 February 2021

New Zealand’s unemployment rate has further to rise, but the country may make it through Covid-19 in “remarkable” shape, economists say.

Stats NZ will release labour market statistics for the December quarter on Wednesday.

Kiwibank’s economists said they expected the unemployment rate to increase from 5.3 per cent to 5.4 per cent. BNZ expects 5.7 per cent and Westpac 5.6 per cent. The Reserve Bank has predicted 5.6 per cent.

Before the pandemic, the unemployment rate was hovering around 4 per cent.

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Employment has not dropped to the levels predicted when Covid-19 first hit.

While unemployment is lower than was feared when Covid-19 first arrived in New Zealand, economists said it had not reached a peak yet.

Kiwibank’s economists said there had been growing anecdotes of worsening trading conditions for tourism operators in particular. They expected joblessness to peak at 6 per cent, less than the 6.5 per cent they had forecast earlier.

“If realised, a 6 per cent peak unemployment rate would be a remarkable outcome from Covid - a once in a century crisis. However, as we have seen in the last few weeks, we are still susceptible to Covid, and an optimistic forecast remains fragile until vaccines have been rolled out.”

They expected wage growth to be minimal. Most of the recent wage growth has been driven by minimum wage increases.

The announcement that the European Commission would put export controls on vaccines produced in Europe was another challenge for the economy, the Kiwibank economists said.

“If we see this type of behaviour being repeated elsewhere, New Zealand risks being pushed toward the back of the queue for vaccines. For now, New Zealand is on track to receive some vaccines at the end of [the first quarter], with the bulk of supply arriving over the remainder of 2021. Any disruptions to this timetable will inevitably push the potential date for our border to fully reopen - a clear downside risk for the New Zealand economy.”

At Infometrics, Gareth Kiernan said he expected a “reasonably limited” increase in unemployment in the December quarter.

“Our forecast is that the unemployment rate will now peak at 6.6 per cent in the first half of this year, but jobless numbers might even struggle to reach that level if the unemployment rate published this week is not up at 6 per cent or over. Apart from a few more job losses in the tourism and retail sectors, our view is that we’re pretty much through the worst of the downturn in the labour market.”

In the week to January 22, 12.4 per cent of the New Zealand working age population was receiving some form of main benefit and 6.8 per cent were receiving Jobseeker Support.