Unemployment may peak at 5.3%, but the recovery could drag

Monday, 3 November 2025

Job hunting is expected to remain tough in at least the year ahead.

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Most economists expect the official unemployment rate will climb to 5.3% when Stats NZ releases the figures for the three months to the end of September on Wednesday.

Many are confident that will represent the high-water mark for joblessness, but some are cautioning it is likely to be a slow road down.

ANZ, BNZ, Kiwibank and Westpac, along with the Reserve Bank, are forecasting unemployment will rise to 5.3%, from the current rate of 5.2%.

“All up, the third-quarter labour market data is expected to show the economy is operating with a considerable degree of spare capacity,” ANZ senior economist Miles Workman said.

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ASB senior economist Mark Smith is forecasting it will remain at 5.2% but warned unemployment would not quickly deflate.

“The worst is behind us, but we don’t expect to see a meaningful lift in employment until 2026,” he said.

“There are few catalysts on the horizon besides supportive monetary policy settings that will push employment concertedly higher.”

As thousands scramble for jobs at Ikea’s new Auckland store, young workers say they’re desperate for a chance. Unemployment has jumped 11% in a year, and youth are hit hardest.

The Reserve Bank is forecasting unemployment will still be at 5% in the September quarter next year, which would suggest there would be no big drop before the next election.

The official unemployment rate — which is based on a Stats NZ survey rather than benefit numbers — has surprised slightly on the downside so far this year.

But that has been because of a larger number of people than expected not being counted as officially unemployed because they had given up looking for work for a variety of reasons, or settling for part-time work.

The unemployment rate rose only modestly to 5.2% in the three months to the end of June, from 5.1% the previous quarter, but the “under-utilisation rate”, which is a broader measure of slack in the labour market, rose at a faster pace to 12.8%, from 12.4%.

The under-utilisation rate, which measures the proportion of people wanting to work more hours, was at its highest rate since 2020.

At the same time as updating the employment figures, Stats NZ releases estimates of pay rises.

These can be closely watched by the Reserve Bank for any sign inflation is becoming entrenched.

ANZ is forecasting Stats NZ will report on Wednesday that private-sector hourly earnings rose 4.5% year-on-year, excluding overtime — decently ahead of the 3% inflation rate.

But forecasters are currently assuming the bank will cut the Official Cash Rate by a further 25 basis points when it releases its last monetary policy statement for the year on November 26.