Economists now expect unemployment to rise further later this year, reflecting a softer hiring environment. Attention is turning to the latest employment data, which is expected to show the New Zealand economy entered the recent oil shock with existing spare capacity.
While the unemployment rate is forecast to remain relatively stable in the near term, around 5.3 per cent, major banks are becoming pessimistic. BNZ has revised its outlook and expects unemployment to peak closer to 6 per cent. The bank cited softer hiring intentions, weaker business sentiment, and revisions in jobs data.
Although employment growth may still show gains in the short term, this does not fully reflect the economic fallout from the Middle East conflict. Rising oil prices are increasing costs across the economy. This is creating additional pressure on businesses already dealing with weak demand.
Firms are increasingly concerned about profitability and the broader outlook. While some indicators suggest the initial shock may be easing slightly, many businesses are hesitant to hire or invest until conditions become clearer. This caution is flowing directly into the labour market. Employers are slowing recruitment plans, and the uncertainty is becoming an economic drag.
From an inflation perspective, there is one modest positive. Wage expectations have softened, reducing the risk that higher living costs will trigger widespread wage-price spirals. Businesses appear less willing or able to offer large pay increases, even as households come under growing pressure.
This creates a difficult balancing act. Slower wage growth may help central banks contain inflation, but it is unwelcome for workers already facing higher prices.
Households are becoming increasingly pessimistic. Consumer confidence has dropped sharply, reaching its lowest level in almost three years. Concerns about the economy and rising living costs are weighing on spending intentions.
At the same time, inflation expectations have risen sharply. This gap between what households expect inflation to be and what businesses are willing to pay is becoming increasingly unsustainable. Financial markets have so far remained relatively resilient, but the economic risks are building. Much depends on how long elevated oil prices persist and whether supply disruptions continue.
For businesses, consumers, and policymakers alike, the coming months will be shaped by a familiar but intensifying challenge, which is managing an environment defined by volatility and slowing growth. The labour market is unlikely to remain immune for much longer.
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