NZ Unemployment Rate Seen Rising to 5.4% as Economic Activity Rebounds

TD Securities' Australia/NZ macro team has released its latest forecast for New Zealand's labor market, predicting a slowdown in employment growth and an increase in unemployment. According to their analysis, employment growth is likely to have edged up by 0.1% quarter-over-quarter (q/q) in Q2, but this pace is unlikely to keep up with population gains.

The team expects the unemployment rate to rise to 5.4%, returning to its recent cycle high and aligning with the Reserve Bank of New Zealand's (RBNZ) May forecast. This increase in unemployment would mark a reversal from the previous quarter, where the rate had dipped to 5.3%.

Despite this anticipated slowdown, TD Securities believes that economic activity will rebound into Q3, setting the stage for another interest rate hike by the RBNZ in September. The team forecasts a 25 basis point (bp) increase in borrowing costs, echoing their previous predictions.