The unemployment rate in New Zealand rose slightly more than expected in the second quarter, signaling the economy’s decline into a shallow recession due to higher interest rates. According to Stats NZ, the seasonally adjusted unemployment rate reached 3.6% in Q2, compared to 3.4% in Q1. Although economists had predicted a jobless rate of 3.5%, the increase was attributed to the slowing economy, which prompted the Reserve Bank of New Zealand to halt further interest rate hikes.
During the first quarter, New Zealand’s agriculture-rich economy contracted by 0.1%, following a 0.7% contraction in the previous quarter. The economy remained weak throughout the second quarter, as reported by Stats NZ. Despite its aggressive stance on interest rates, the Reserve Bank of New Zealand faced challenges as other central banks worldwide paused their tightening measures to assess the impact on their respective economies.
Additionally, labor underutilization rose from 9.1% to 9.8% in Q2, primarily driven by an increase in underemployed part-time workers. Nevertheless, the overall labor market underutilization rate remained relatively low compared to historical averages. In fact, the labor force participation rate hit a record high of 72.4%, the highest since data has been recorded since 1986.
Despite the decline in overall employment, the tourism sector saw promising signs of recovery as employment in tourism-related industries returned to pre-Covid-19 levels in Q2, experiencing an annual growth of 11.0% to reach 275,300 jobs. Meanwhile, annual wage cost inflation remained stable at 4.3% in Q2.