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If the Reserve Bank of New Zealand (RBNZ) does not cut far enough, the risk of further job losses grows.
New Zealand businesses will need the helping hand of lower interest rates if they are to retain staff.
This is the assessment of Kiwibank following the release of data showing New Zealand's unemployment rate rose to 5.1% year-on-year in the final quarter of 2024 from 4.8% in the previous quarter.
The rise in the unemployment rate was accompanied by an increase in the underutilisation rate from 11.6% to 12.1%. The underemployment rate – those working part-time and wanting more hours – rose from 4.0% to 4.8%.
"The ongoing rise suggests that spare capacity within the broader market is growing," says Mary Jo Vergara, Senior Economist at Kiwibank.
Image courtesy of Kiwibank.
"Looking deeper into the details reveals sobering weakness in the Kiwi jobs market. Worker demand continues to wane," she adds, citing figures that unemployment has seen the steepest rise since the financial crisis of 2008.
Those in full-time work fell 1.7% in 2024 and the part-time workforce expanded by 1.5%.
"The cut back in hours and staff was an inevitable outcome for the labour market given the RBNZ’s delivery of aggressive rate hikes. And fewer hours is another warning sign of weak economic activity for the December quarter," says Vergara.
Although the RBNZ has moved to row back on some of these rate hikes, more must be done, according to Kiwibank.
Image courtesy of Kiwibank.
The RBNZ's most recent policy update showed it expects to cut the OCR to 3.5% from 4.25% in the coming year, implying three more cuts are on the table.
Kiwibank thinks at least two additional cuts are required to take the base rate to 3.0%.
"We are hopeful that a recovery in the second half of this year should help businesses avoid further significant cuts to headcount. But should we not get the required rate relief from the Reserve Bank, the risk of further reductions only grows. It’s why we think the Reserve Bank will need to deliver more than they have signalled this year," says Vergara.
"Holding out for longer is just going to cause unnecessary and indeed avoidable damage to the labour market," she adds.