New Zealand labour market remains soft, adds to rate-cut expectation

[WELLINGTON] New Zealand’s jobless rate rose slightly in the second quarter as the labour market remained soft, supporting the view that the central bank will proceed with a flagged 25 basis-point interest cut at its August policy meeting.

The jobless rate reached 5.2 per cent for April-June from 5.1 per cent three months prior while employment fell 0.1 per cent, Statistics New Zealand data showed on Wednesday.

The labour force participation rate – which includes workers either employed or actively looking for work – fell to 70.5 per cent from 70.7 per cent, its lowest since the first quarter of 2021.

The jobless rate compared with the 5.3 per cent average of analyst estimates compiled by Reuters and matched the central bank’s forecast.

Following the data release, the New Zealand dollar was steady at US$0.5899 and the chance of an Aug 20 rate cut reached 88 per cent.

After a strong start to 2025, the economy’s momentum looks to be slowing and the outlook remains incredibly uncertain, senior economist Mark Smith at ASB Bank said in a client note.

“With the trajectory for medium-term inflation well within the (central bank’s) 1-3 per cent target range, further monetary easing looks appropriate to support the labour market and broader New Zealand economy,” Smith said.

Since August 2024, the Reserve Bank of New Zealand has cut its cash rate by 225 basis points to support an economy which sank into recession last year. The economy showed signs of improvement with gross domestic product increasing 0.8 per cent in the first quarter.

Last month, the central bank held the cash rate steady at 3.25 per cent to assess the impact of trade ruction and a slight acceleration in inflation but indicated a further cut was likely in August.

Wednesday’s data indicated the economy continues to operate with a considerable degree of excess capacity which could slow the rate of inflation, said ANZ senior economist Miles Workman in a note.

This data and the possibility that firms could start to shed excess labour over the second half of this year “means we think the RBNZ will over time start putting more weight on downside medium-term inflation risks,” Workman said.

Statistics New Zealand said wage growth increased in the second quarter with its private-sector labour cost index excluding overtime recording a 0.6 per cent lift, compared with 0.4 per cent in the prior quarter and in line with forecasts. Seasonally adjusted private-sector wages increased 2.2 per cent. REUTERS