NZ unemployment rate likely to rise to 4.4 pct in Q2, should set stage for RBNZ rate cut: ANZ Research

New Zealand’s unemployment rate rose to 4.4 percent in Q2, as weakness in the economy filtered through to the labour market. Survey indicators and job ads suggest employment growth was weak in Q2, consistent with subdued GDP growth.

Employment growth is expected to soften from 1.5 percent to 1.1 percent  y/y in the second quarter. Employment is expected to have grown a soft 0.2 percent q/q. Several indicators of employment growth for the June quarter have been extremely weak, with a fall in job ads and a drop in hiring intentions in business surveys.

Wage inflation is expected to remain flat at 2.0 percent y/y, with a quarterly increase supported by minimum wage increases and previous tightening in the labour market.

The higher unemployment rate should set the scene for the RBNZ to cut the OCR at the August MPS the following day, and signal that an even lower OCR is likely needed, the report added.

On the wage side, annual wage inflation is expected to have remained unchanged in the June quarter, despite a boost from the April minimum wage increases.

Nominal LCI private sector wages are expected to have risen 0.6 percent q/q, with minimum wage rises contributing around +0.2 percentage point to the quarterly print. That would leave annual wage inflation unchanged at 2.0 percent y/y. Underlying wage inflation remains fairly subdued, and has inched up only very gradually.

"The higher unemployment rate should set the scene for the RBNZ to cut the OCR at the August MPS the following day, and signal that an even lower OCR is likely needed," ANZ Research further commented in the report.