The data from Stats NZ reveals employment has experienced its largest annual decline since 2009, and economists predict further falls before recovery.
This rise in unemployment is in line with expectations. Meanwhile, businesses continue to grapple with financial pressures and a sluggish economy. Analysts suggest that job losses will persist through the first half of 2025, with a gradual improvement anticipated later in the year.
Experts anticipate that hiring will remain subdued for most of 2025, as businesses navigate economic volatility. Some industries may stabilise but overall labour demand is expected to remain weak. Economists forecast that slow growth in the working-age population and a discouraged worker effect will limit labour force expansion. This will help keep unemployment elevated in early 2025 before it gradually declines.
Despite signs that labour demand is stabilising, the unemployment rate is unlikely to decrease in the near term. Migration patterns have shifted, slowing the growth of the labour supply. As a result, employment growth is not expected to keep pace with workforce expansion until late 2025, potentially pushing the unemployment rate higher before it begins to decline.
The shifting labour market is also influencing wage dynamics, with the balance of power moving back towards employers. Labour cost growth is expected to moderate in 2025, as fewer roles see pay increases and the size of those increases continues to diminish. The Labour Cost Index (LCI) showed a 0.6 per cent rise for the private sector and a 0.5 per cent increase in the public sector, suggesting a slowdown in wage growth.
While economic conditions are expected to improve gradually over the next year, economists caution that meaningful employment growth will take time. Businesses remain cautious about increasing headcount, given the ongoing uncertainty surrounding economic recovery.
Although the labour market is currently facing headwinds, economists believe conditions will stabilise towards the latter half of 2025. Hiring is expected to pick up as the economy strengthens, albeit at a steady pace. Policymakers and businesses must adapt to these evolving conditions, ensuring strategies are in place to support job creation.
In the meantime, job seekers may face a more competitive market, with reduced bargaining power in wage negotiations. However, as confidence returns to the business sector, opportunities for employment growth and wage recovery should emerge, providing a more favourable outlook for workers in the long run.
Contact Accountancy Insurance
We would love to hear from you.
About Accountancy Insurance
Thousands of accounting firms offer our tax audit insurance solution, Audit Shield to their clients.
Find out why.