Unemployment Set to Reach Nine-Year High as Labour Market Weakens

By Liam Dann
Business Editor at Large · NZ Herald · 3 Aug, 2025

Job security has been on the decline as unemployment rises, with new data suggesting the labor market may be heading toward its worst performance in nearly a decade. Economists warn that the June quarter could see the unemployment rate climb to 5.3%, marking a nine-year high. This would be the first time since 2016 that the unemployment rate reaches such levels, and it would come at a time when many are already feeling the strain of economic uncertainty.

The official statistics due out on Wednesday from Stats NZ’s Labour Market Data will offer a clearer picture of the current state of employment, unemployment, underemployment, and wage growth. However, preliminary indicators and recent economic data have already painted a troubling picture.

Labour Market in Deterioration
ANZ senior economist Miles Workman noted that the tentative recovery in labor demand seen in the previous quarter has lost momentum. “A degree of ‘labour hoarding’ has suppressed unemployment in recent quarters,” he said. “If economic momentum does not pick up, we may see more job losses in the coming months.”

Workman also warned that the employment rate could fall by 0.1% in the June quarter, with a year-on-year decline of 0.9%. He added that the labor participation rate, which is already low, could fall further, which would only exacerbate the issue of rising unemployment.

Westpac’s Concerns
Westpac senior economist Michael Gordon echoed similar concerns, pointing to the risk of more job losses, especially among younger workers. “We expect that many of these people will have exited the workforce altogether, dampening the extent of the rise in the unemployment rate,” he said. Gordon also suggested that the labor market may lag behind the broader economy for longer than usual, prolonging the current period of softness.

ASB’s Forecasts
ASB senior economist Mark Smith believes the Reserve Bank of New Zealand (RBNZ) will be more influenced by trends in labor costs than by the unemployment rate itself. “Labour cost growth is expected to cool, with the balance of power firmly tilted towards employers,” he said. Smith predicted a 0.5% quarterly increase in the Labour Cost Index, with annual growth cooling to 2.1%, the lowest in four years.

BNZ’s Perspective
BNZ head of research Stephen Toplis warned that weak employment and job insecurity are creating a double blow to households. “Combined with above-average inflation in essential items like food and electricity, it is another factor threatening the timing and extent of the pick-up in household spending that many are forecasting,” he said.

Call for Rate Cuts
The latest data from Kiwibank economists also suggests that the RBNZ may be considering further rate cuts to stimulate the economy. “We believe it opened the door to a rate cut in August,” they said, referencing the recent inflation data. “Next week’s labour market data is the second test for an August rate cut. And should the data print the way we expect, the door to a rate cut remains firmly open.”

What’s Next?
With the official unemployment rate expected to reach a nine-year high, the implications for both the economy and individual households are significant. As the labor market continues to weaken, the pressure on the RBNZ to respond with more aggressive monetary policy measures is likely to increase. Meanwhile, workers and families will be left to deal with the reality of job insecurity and the rising costs of living.

Conclusion
This is a pivotal moment for New Zealand’s economy. While the data may be discouraging, it also presents an opportunity for policymakers to take decisive action. The path forward will require a combination of fiscal and monetary measures, as well as support for those most affected by the current economic downturn.