The current jobless rate in New Zealand is the lowest since before 2008’s economic crisis, causing earnings to increase even apart from the rise in the minimum wage. The rate of unemployment is now at 3.9 percent, down from the previous rate of 4.2 percent.
Statistics New Zealand stated that salaries and wages from private businesses have increased by 0.8 percent, making the current period qualify as the most significant rise in a decade. Sarah Johnson, business prices delivery manager at Statistics New Zealand, put the economic trend in perspective: “If wages affected by the minimum wage had remained constant, the LCI would have only increased by 0.5 percent this quarter.”
Finance Minister Grant Robertson traced this economic growth back to efforts being made by the current administration. “Wages are also starting to rise as a result of the Government’s policies, meaning more New Zealanders are sharing in the benefits of economic growth,” he said. “Figures today show average ordinary time hourly earnings of $32.37 were up 4.4 per cent from a year ago, its biggest rise since June 2009.”
Mr Robertson added that the decision to raise the minimum wage was the right choice and would lead to more jobs, paving the way forward for the economy.
At the same time, however, the Reserve Bank of New Zealand made a surprising decision to cut interest rates from 1.5 percent to 1 percent. The move was made in order to prevent inflation from the wage boost, as well as to ease the effects on business of the country reducing its unemployment rate. Worries about slower economic growth as a side effect of the US-China trade war likely also played a role in the decision.
In related news, the New Zealand dollar suddenly fell against major currencies right after the rate cut was announced. One New Zealand dollar was valued at 63.95 US cents prior to the announcement, but it later fell to 65.28 US cents. The tumbling New Zealand dollar also pulled down Australian and Canadian dollars, as these countries’ economies rely on the export of commodities as well.
The Reserve Bank’s decision has made may indeed reduce the possibility of inflation – but there is also a chance that it will cause the economy to stall entirely. “Offence is the best form of defence,” quipped Josh Williamson, Citi’s economist.
Governor Adrian Orr of the Reserve Bank of New Zealand explained the context behind the bank’s decision. “The number one challenge for us is business behaviour and with the uncertainty rising around the US-China trade tensions, business uncertainty can be paralysing to investment activity,” he said. “We’re seeing increasing concerns. As uncertainty lingers, it is holding up investment decisions.”
In the background to each of these economic developments has been Prime Minister Jacinda Ardern, and her efforts to pitch New Zealand to Australian investors. The two countries have plenty of common ground to build on, yet the long-term outcome of their economic relationship will depend in large part on New Zealand’s ability to keep its public and private sectors in a healthy and balanced relationship during the present growth period.