Data this coming week could reveal New Zealand’s unemployment rate has hit its highest point in 11 years.
Statistics NZ's labour market data for the June quarter is due out on Wednesday, August 5, and will show just how much the jobless rate climbed over those three months.
NZ’s March quarter unemployment rate was 5.3%, with 163,000 people officially unemployed. If it reaches 5.5% or higher, it will be the highest for more than a decade.
The Reserve Bank (RBNZ) anticipates the jobless rate will have inched up to 5.4%. In its May Monetary Policy Statement (MPS), the RBNZ projected the unemployment rate would “remain near this level until mid-2027.”
“We expect this to occur as firms’ margins are compressed, and the rate of hiring slows while the population continues to grow. Total employment is projected to remain broadly unchanged in the June 2026 quarter, before beginning to grow again,” the RBNZ said.
In the March quarter, NZ’s unemployment rate edged down from 5.4% to 5.3%. As measured by the Household Labour Force Survey (HLFS), the number of unemployed people fell to 163,000 from 165,000 in the December quarter. But there were still 7,000 more unemployed people in March compared to a year earlier.
The unemployment rate hasn’t been below 5% since September 2024. The last time it dipped below 4% was in September 2023.
Where will it go?
For the June quarter data, economists are either expecting the jobless rate to remain flat, or forecasting it will jump higher.
BNZ and Westpac NZ economists have matched the RBNZ’s projections and believe the unemployment rate will tick up to 5.4% in the June quarter.
“A larger-than-expected participation dip could prevent the unemployment rate from pushing higher,” BNZ senior economist Doug Steel said.
The participation rate is the percentage of the working-age population employed or actively looking for work. In the March quarter, the participation rate was 70.4%. The RBNZ is forecasting a participation rate of 70.3% in the June quarter.
BNZ is forecasting 2.0% annual growth in the private sector Labour Cost Index (LCI), matching the March quarter. The LCI measures changes in salary and wage rates for a fixed amount and quality of work. The LCI came in at 2% in the March quarter.
Steel said that higher oil prices and renewed upward pressure on domestic fuel prices have raised the risk of inflation staying close to 4% through the rest of 2026.
Annual inflation, as measured by Statistics NZ’s Consumers Price Index (CPI), increased to 4.1% in the June quarter – the highest annual inflation rate NZ has seen since it hit 4.7% in December 2023.
“We continue to see near-term inflation above the RBNZ’s July Monetary Policy Review (MPR) estimates. The longer inflation stays outside the Bank’s target band, the greater the risk it becomes entrenched. The RBNZ will be keen to avoid that, so we continue to expect further removal of monetary stimulus,” Steel said.
“It remains anyone’s guess as to how the situation in the Middle East evolves.”
Lack of momentum
Like BNZ, Westpac is matching the RBNZ’s unemployment rate forecast of 5.4%. Senior economist Michael Gordon said the jobs market had held its ground through the Middle East conflict but hadn’t gained the momentum Westpac would’ve hoped to see.
While households are still struggling with cost-of-living pressures, he said the existing degree of slack in the labour market is a “crucial difference” between the current environment and the surge in wage growth that NZ experienced post-Covid.
Because of this, Westpac expects a 0.6% rise in the LCI for the June quarter, keeping annual growth just below 2%.
According to Gordon, a 0.1% rise in employment wouldn’t be enough to keep up with the growth in the working-age population, which has an already-reported 0.3% rise for the quarter.
“That means we’ll likely see some combination of people either moving into unemployment or dropping out of the active labour force. That said, we’re talking about small increments – we expect a 0.1ppt rise in the unemployment rate to 5.4%, and a 0.1ppt fall in the participation rate to 70.3%.”
A ‘relatively soft’ picture
ANZ NZ and ASB economists are anticipating a slightly higher increase to the unemployment rate next week, forecasting it will rise to 5.5%.
This would take NZ to the highest level of unemployment the country has experienced since the June 2015 quarter, 11 years ago.
ANZ senior economist Miles Workman said the labour market data is expected to paint a “relatively soft picture of the labour market” as firms will have “pressed the pause button” during the June quarter due to spiraling oil prices and heightened global uncertainty.
“For the RBNZ, this suggests that the labour market is unlikely to become a renewed source of accelerating CPI inflation pressures any time soon,” he said.
ANZ also expects ongoing slack in the labour market to keep wage pressures contained, with annual wage growth measured by the LCI slowing 0.1% to 1.9%.
“While contained wage growth is not good news for households facing acute cost-of-living pressures, it does mean that wage-price spiral risks are mitigated, reducing the likelihood that the RBNZ will need to lift the OCR into outright restrictive territory (that is, well beyond 3%),” Workman said.
ASB also agrees that the June quarter labour market figures are likely to remain soft, despite tentative signs that the pre-Middle East conflict recovery was flowing into employment.
ASB economist Wesley Tanuvasa said the “size and persistence” of the Middle East cost shock remain uncertain, particularly given how fluid US–Iran developments are right now.
“Next week’s employment figures may show some improvement, but the overall story is that the labour market remains soft and Kiwi households have done it tough over the last economic cycle,” he said.
ASB expects the figures to show the participation rate has held at 70.4% and for the LCI to come in at 2% for a third quarter in a row.
No huge spikes
Kiwibank expects the June quarter labour market data to reflect the soft start to the year and for the unemployment rate to remain at 5.3%.
Kiwibank economist Alexandra Turcu said the increase in filled jobs over the quarter is likely to largely be eaten up by positive net migration and growth in the working age population. The bank's economists expect an employment rate of 66.3% – down from 66.7% in the March quarter – and the participation rate to be 70.1%.
Kiwibank anticipates wage growth to “track sideways” in the June quarter, and for the LCI will come in at 2.1%.
“The soft demand for labour, coupled with plenty of job seekers, will keep the lid on wage growth too,” Turcu said.
“Therefore, we aren’t expecting a huge spike in unemployment. In fact, we don’t expect to see much movement at all.”
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