positive indicators<\/a> in the details, showing the labour market was turning a corner. But things have changed a lot since then with conflict in the Middle East impacting fuel supply and causing major supply disruption in the global oil market.<\/p>\nIn the lead up to next week’s labour market data drop, Kiwibank economists Jarrod Kerr and Alexandra Turcu said; \u201cimprovements in the labour force will show up next week, but it\u2019s old data\u201d.<\/p>\n
\u201cAny improvements from here will likely be a slow, very slow, burn story. Labour market tightening takes time, and requires business sentiment to stabilise and improve,\u201d they said.<\/p>\n
\u201cAny confidence building up by businesses has been slashed by skyrocketing fuel costs and supply disruptions.\u201d<\/p>\n
Alongside this, the labour market tends to lag the economic cycle.<\/p>\n
ANZ and Westpac announced they\u2019re projecting the unemployment rate to hold at 5.4% for the March quarter, while ASB and BNZ have gone for 5.5%.<\/p>\n
The Reserve Bank, in its February Monetary Policy Statement (MPS), was projecting a 5.3% unemployment rate for the March quarter. The February MPS came out before the conflict in the Middle East began.<\/p>\n
Economic conditions pre-dating conflict in the Middle East<\/p>\n
Westpac senior economist Michael Gordon said; \u201cwe expect next Wednesday\u2019s labour market surveys to show a steadying in the jobs market over the March quarter.\u201d<\/p>\n
\u201cThere\u2019s a growing range of evidence that the economy was starting to find its footing again in the early part of the year, at least up until the Iran conflict.<\/p>\n
\u201cBut with the labour market tending to lag the broader economic cycle, we should expect jobs growth and wage demands to remain muted at this stage.\u201d<\/p>\n
Gordon said they expected a small drop in employment and participation rates this time, \u201creversing a surprising jump in the previous quarter\u201d.<\/p>\n
The unemployment rate is the key variable to watch, Gordon said.<\/p>\n
\u201cWe expect wage growth to continue running at about 2% annualised, reflecting the degree of slack in the jobs market and the moderation in inflation in recent years.\u201d<\/p>\n
Gordon said Westpac\u2019s projections are \u201ca little softer\u201d than what the RBNZ expected in its February MPS, \u201chowever, the fast-moving developments in the Middle East mean that the RBNZ\u2019s forward view on the labour market will likely have shifted since then.\u201d<\/p>\n
ANZ senior economist Miles Workman said the labour market data for the March quarter will largely reflect economic conditions that pre-date the oil shock.<\/p>\n
The RBNZ did not provide an updated labour market projection at its April Monetary Policy review, Workman said, but the slow-moving nature of the labour market means its February MPS projection of 5.3% \u201cremains within the realm of possibility.\u201d<\/p>\n
Middle East conflict presents \u2018significant challenges\u2019 to NZ\u2019s labour market outlook<\/p>\n
BNZ head of research Stephen Toplis said job ads lifted in the quarter and jobseeker numbers were stable suggesting the labour market deterioration had slowed pre-conflict.<\/p>\n
BNZ anticipated labour force participation to lift slightly and annual wage growth to remain subdued, Toplis said.<\/p>\n
“Employment lifted in te fourth quarter of 2025 for the first time in over a year and we expect this continued in the first quarter of 2026. However, our forecasts for improved labour supply would still see the unemployment rate tick up to 5.5%.”<\/p>\n
Toplis said there is more interest in how the employment picture evolves from the June quarter onwards.<\/p>\n
\u201cWe have lowered our employment growth forecasts and see the unemployment rate peaking around 5.8% later this year.\u201d<\/p>\n
‘Heightened stagflationary risks’<\/p>\n
ASB economist Wesley Tanuvasa said the March quarter was expected to reflect a firming employment trend and strong labour supply response but headline numbers \u201cwill likely remain weak.\u201d<\/p>\n
\u201cWe estimate first quarter employment grew 0.1% quarter-on-quarter. However, this will be outpaced by a stronger increase in the labour force reflective of stronger net immigration. This is expected to push the unemployment rate up to 5.5%. Labour cost growth should remain modest.\u201d<\/p>\n
Tanuvasa said conflict in the Middle East presents significant challenges.<\/p>\n
“The Middle East conflict presents significant challenges to the NZ labour market outlook. We do not envisage a labour market recovery unfolding until 2027 and cite heightened stagflationary risks over 2026 given higher near-term unemployment and higher near-term inflation in our projections. “<\/p>\n
Official Cash Rate<\/p>\n
In April, the RBNZ held the Official Cash Rate (OCR) at 2.25%<\/a>. Several bank economists have brought forward their OCR hike projections – with many picking July but not ruling out the possibility of an increase in May.<\/p>\nANZ\u2019s Workman said the March quarter data is expected to show that the economy entered the oil shock \u201cwith a considerable degree of disinflationary slack in the labour market.\u201d<\/p>\n
\u201cWhile that is by no means good news, it does limit the risk of labour costs re-emerging as a source of CPI (consumer price index) inflation pressure in the near term.\u201d<\/p>\n
Workman said \u201cin turn, this should mean that when the RBNZ does begin hiking the OCR, it only needs to \u2018normalise\u2019 monetary settings rather than push interest rates into outright contractionary territory.\u201d<\/p>\n
\u201cAs a first pass, that would imply an OCR peak of around 3%. That said, there are plenty of scenarios in which the peak could be higher (or lower) than this.\u201d\u00a0<\/p>\n
Westpac\u2019s Gordon said: \u201cThe bigger issue for the RBNZ will be what has happened since the MPS: the Middle East oil shock will hinder the economic recovery, potentially leading to delays in hiring, layoffs and business failures.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Improvements are likely to feature in upcoming March quarter labour market data, economists say, but it reflects economic…\n","protected":false},"author":2,"featured_media":409077,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,219,111,139,69],"class_list":["post-409076","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-new-zealand","tag-newzealand","tag-nz"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/409076","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=409076"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/409076\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/409077"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=409076"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=409076"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=409076"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}