With too many individuals vying for too few job opportunities, the landscape of employment is undergoing a profound transformation. Economists and policymakers alike are bracing for the inevitable rise in unemployment, with expectations hovering around 4.2 per cent by the end of March—a significant uptick from the current 4 per cent.
This surge is attributed to the lingering effects of a recession that has plagued the economy for much of the past year. According to ASB senior economist Mark Smith, the labour market is on a trajectory to deteriorate further, with projections indicating a potential breach of the 5 per cent mark by year-end.
Interestingly, despite the bleak outlook, the economy has experienced a paradoxical increase in job creation. However, this growth primarily stems from sectors that have benefited from previous government spending initiatives, such as education, healthcare, and public administration.
ANZ economist Henry Russell highlights that while jobs have been added, there is a gradual attrition of workers, particularly among fringe employees who were drawn into the labour market during times of scarcity.
Recent data from Stats NZ paints a mixed picture, with a marginal increase in filled jobs juxtaposed against a decline in employment among 15-19-year-olds compared to the previous year. Moreover, indicators from the Seek employment website reveal a stark decline in job listings, accompanied by a surge in applications—a testament to the heightened competition within the labour market.
The public and private sectors alike have not been immune to the economic downturn, with a slew of job cuts announced since the beginning of the year. While these layoffs may not immediately impact unemployment figures, they contribute to a landscape where fewer jobs are available, exacerbating the challenges faced by job seekers.
In tandem with rising unemployment, there is a discernible easing of wage growth—a reflection of reduced pressure on businesses to attract and retain talent. Westpac senior economist Michael Gordon notes that labour shortages, once a pressing concern for businesses, have now abated, leading to a moderation in wage growth expectations. This trend is expected to persist, with a projected annual rise in labour costs of 3.7 per cent—an indication of the broader economic slowdown.
For the Reserve Bank of New Zealand (RBNZ), navigating this delicate balance between employment and inflation is paramount. ASB’s Mark Smith emphasizes the RBNZ’s commitment to ensuring inflation remains below 3 per cent, signalling a potential reduction in the official cash rate (OCR) in early 2025 if conditions warrant.
As New Zealand braces for the economic headwinds ahead, policymakers are tasked with implementing measures to mitigate the impact of rising unemployment and stagnant wage growth. In an era of uncertainty, adaptability and resilience will be the hallmarks of a nation poised to weather the storm and emerge stronger on the other side.
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.