New Zealand’s labour market continued to show signs of softening in the first quarter, with employment growth remaining tepid, the unemployment rate holding near a multi-year high, and wage inflation moderating.
These latest figures reinforce market expectations that the Reserve Bank of New Zealand (RBNZ) will implement further interest rate cuts, potentially as early as this month, as it seeks to stimulate a sluggish economy.
The South Pacific nation narrowly avoided a prolonged recession at the end of last year, but continues to grapple with weak domestic demand and mounting external risks, notably from the ongoing global trade friction spurred by US President Donald Trump’s policies.
In response to these challenges, the RBNZ has already aggressively cut its official cash rate by 200 basis points since August 2024, bringing it down to 3.5%.
Today’s employment data further strengthens the case for continued monetary easing.
Statistics New Zealand reported Wednesday that the unemployment rate remained unchanged at 5.1% in the first quarter of the year. Employment saw a marginal increase of just 0.1% compared to the previous quarter.
While these figures were slightly better than some economist forecasts (Reuters poll: 5.3% unemployment, 0.1% employment rise) and the RBNZ’s own expectation of a 5.2% unemployment rate, they still point to considerable slack in the job market.
Wage growth slows, participation dips
Crucially, wage inflation showed signs of cooling.
The private sector labour cost index, excluding overtime, rose by 0.4% in the first quarter, a slowdown from the 0.6% increase recorded in the prior quarter and below the forecast 0.5% rise.
This easing in wage pressures suggests that inflationary impulses from the labour market are diminishing.
Further indicating a loosening, the labour force participation rate dipped to 70.8% in the first quarter, down from 71% previously.
Westpac senior economist Michael Gordon noted a significant trend in youth participation, observing a “marked drop… in recent quarters, with the tougher jobs market seeing young people returning to or spending longer in study rather than actively looking for work.”
Reinforcing expectations for RBNZ action
Analysts broadly interpreted the data as supportive of further RBNZ rate cuts.
“The broader suite of data continues to suggest there’s plenty of excess capacity in the labour market (and the economy more broadly) – a signal that domestic CPI inflation pressures will continue to wane for a while yet,” commented Miles Workman, senior economist at ANZ Bank, in a research note.
He added that ANZ remains comfortable with its expectation that the central bank will ultimately cut the cash rate to 2.5%.
The New Zealand dollar showed little reaction to the data release, trading around $0.6010, as the figures largely aligned with market expectations for a softening labour market.
Financial markets are now pricing in a high probability that the RBNZ will cut the cash rate by another 25 basis points at its meeting later this month, with further reductions anticipated throughout the year, potentially taking rates below 3.0% before year-end.
“With inflation within the 1-3% target range, further monetary easing looks appropriate to support the labour market and New Zealand economy,” stated ASB Bank Senior Economist Mark Smith in a note.
ASB Bank anticipates an additional 75 basis points of rate cuts throughout 2025, underscoring the prevailing view that more stimulus is needed to invigorate New Zealand’s economy.
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