Kiwibank Sees Labour Market Stagnation Amid Middle East Conflict

New Zealand's labour market is expected to remain soft for the rest of 2026, according to Kiwibank economist Alexandra Turcu. The bank forecasts unemployment to hold at 5.3%, with wage growth tracking sideways at 2.1% in the June quarter.

The Middle East conflict continues to impact the economy, disrupting what should have been a stronger recovery. Kiwibank notes that labour supply is outpacing hiring demand, which could lead to higher unemployment rates than predicted. Westpac and ASB expect unemployment to climb even higher, with Westpac forecasting 5.4% and ASB predicting 5.5%.

The June quarter saw an 'ugly inflation print' of 4.1%, but Kiwibank believes the peak may have already passed. Household spending pulled back in June as fuel costs bit, with temporarily lower prices failing to translate into increased spending elsewhere. Businesses have largely absorbed rising cost pressures rather than passing them on through price rises.

The youth exodus to Australia continues, with many young people finding work across the Tasman. This trend is partly driven by positive net migration adding to the pool of potential workers faster than new roles are created.