Unemployment in New Zealand is set to increase to a three-year top and wage growth decline.

According to economists, and the Reserve Bank of New Zealand, unemployment is forecast to rise to around 4.2% at the end of March from 4%, whilst annual wage growth is set to fall to 3.8%.

ASB senior economist Mark Smith stated that the economy had been in recession for much of the past year, and with little prospect of improvement, the labour market would deteriorate.

“Growth in the labour supply looks set to continue to outstrip the slowing demand for workers, with the unemployment rate set to push above 5% by year end,” he said.

Yet the economy has added jobs, reflecting more the lags in the economy than an actual increase in labour demand, RNZ reports. 

ANZ economist Henry Russell stated that the growth in employment had mostly been in sectors benefiting from previous government spending, such as education and training, healthcare and social assistance, and public administration and safety.

However, he added that the workforce would likely gradually lose workers.

“The significant increase in competition in the labour market is likely to see fringe workers who were pulled in at the height of tightness in the labour market continue to exit.”

Since the beginning of the year, a raft of job cuts have been unveiled, particularly in public service, the RNZ report goes on to add.

Up to now, around 3,500 public service positions are forecast to go, whilst in the private sector the number is around 700 so far this year.

Additionally, another outcome of the weakening labour market is anticipated to be diminished wage pressures.

Labour shortages were no longer businesses’ main concern, said Westpac senior economist Michael Gordon.

“That would suggest that the pressure to bid up [wages] to attract workers has largely faded.”

Expectations are for labour costs to rise by 3.7% annually, reflecting some significant public service deals from last year.

“We should see a more meaningful moderation in wage growth over the year ahead,” Gordon added.

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