By Lucy Craymer
WELLINGTON (Reuters) -New Zealand’s employment grew at a soft pace in the first quarter with the jobless rate holding around 4-1/2-year highs and wage inflation moderating, reinforcing bets for more interest rate cuts later this month and throughout the year.
The South Pacific nation crept out of a recession at the end of last year, but sluggish domestic demand and rising external risks from U.S. President Donald Trump’s global trade war remain a drag on economic growth.
In an effort to shore up demand, the Reserve Bank of New Zealand has slashed the cash rate by 200 basis points since August 2024 to 3.5%, and analysts say the jobs data backs expectations for a further round of cuts during the year.
Statistics New Zealand data on Wednesday showed the unemployment rate remained unchanged at 5.1% in the first quarter, while employment increased 0.1% from the previous quarter.
Economists polled by Reuters had forecast an unemployment rate of 5.3% and for employment to rise 0.1%. The central bank had expected the unemployment rate to be 5.2%.
“The broader suite of data continues to suggest there’s plenty of excess capacity in the labour market (and the economy more broadly) – a signal that domestic CPI inflation pressures will continue to wane for a while yet,” said ANZ Bank senior economist Miles Workman in a note.
He added they remain comfortable with the expectation that the central bank will cut the cash rate to 2.5%.
Inflation in New Zealand in the first quarter hit 2.5%, slightly above expectation but comfortably within the central bank’s target range of 1% to 3% for the third consecutive quarter.
The New Zealand dollar was little changed following the largely inline data, and is currently trading at 0.6001.
Wage growth slowed in the quarter with the private sector labour cost index excluding overtime recording a 0.4% lift, compared with 0.6% increase in the prior quarter. It was weaker than the forecast 0.5% increase for the quarter.
The participation rate was 70.8% in the first quarter, down from 71% in the prior quarter.
Westpac senior economist Michael Gordon said there has been a marked drop in youth participation in recent quarters, with the tougher jobs market seeing young people returning to or spending longer in study rather than actively looking for work.
The easing in tight labour market conditions and softening in wage pressures support the central bank’s easing bias and point another 25-basis-point cut in the cash rate when it meets at the end of the month.
Markets are wagering rates will drop below 3.0% before the end of the year, with swaps implying a further three rate cuts for the rest of 2025.
