- The New Zealand economy has faced several obstacles since the onset of the COVID-19 pandemic.
- While the economy contracted in the March 2022 quarter, the labour market’s strength has fuelled hopes of an economic revival.
- The labour market strength has been evident in the form of rising retail wages, low unemployment rate and surging job ads.
The New Zealand economy has experienced a rollercoaster ride since the COVID-19 pandemic ensued. While the country has been actively battling virus cases, the sinusoidal movement of economic growth has continued.
The Russia-Ukraine war has raised commodity prices and has slowed economic recovery from the pandemic. At the same time, supply chain disruptions have been a source of friction against all policy measures taken to uplift the economy.
More worrying is the latest data released by Stats NZ, which shows that the New Zealand economy contracted by 0.2% in the March 2022 quarter. This was much below the forecasts by economists, who expected the economy to expand by 0.6%. At the same time, the country is facing record-high inflation as global factors create havoc across the economy.
In the current climate of high inflation, the New Zealand economy seems prone to see a downward shift in consumer demand. With interest rates moving north, mortgage-holding households will be forced to pay higher interest repayments in the months ahead.
Despite the chaos, certain factors have provided stability to the economy, continuing the country’s recovery from the pandemic. One such crucial factor is the strong labour market. In this backdrop, let us discuss three important aspects highlighting the strength of the labour market:
Rising retail wages
Amidst widespread economic turmoil, the NZ workforce has found reason to rejoice following a rise in the average hourly retail wage. According to the Retail NZ Wages Guide, the average hourly wage rate now has surged 6.4% to NZ$26.65 in 2022.
The retail sector wages have remained relatively buoyant, staying significantly higher than the minimum wages. The guide further suggests that retail workers are offered a range of additional benefits that can help ease the inflationary pressures. While an uptick in retail wages reflects the strength of the retail sector, the extra benefits show that the workforce is highly valued.
As retail industries across the globe experience a worker shortage, an uptick in wages could help keep New Zealand’s workforce intact. This could also attract more workers to the sector, particularly those in a youth age group.
Increasing labour demand
New Zealand is also witnessing a higher number of job ads as labour market conditions improve. The latest SEEK employment data reveals that national job ads rose 3% month-on-month and 15% year-on-year in May 2022. The rising number of job ads indicates businesses are back into action and on the cusp of recovery.
Jobs ads trends further suggest a growing demand for permanent workers compared to temporary ones. In other words, companies are looking to fill permanent positions instead of casual or part-time ones.
With hybrid working becoming the new normal in the post-pandemic era, businesses have also expanded their hiring processes. Now, hiring an additional workforce no longer means providing them with a place to work, given the popularity of remote working setups. This has made it easier for smaller companies to expand their operations. In a way, the pandemic has been a blessing in disguise for many companies.
Record-low unemployment rate
The drop in the unemployment rate to record-low levels has been another win for the NZ labour market. The jobless rate stood at 3.2% in the March 2022 quarter, unchanged from the previous quarter. This has potentially carved the way for a wage hike in New Zealand, giving workers higher negotiation powers.
Though economists had expected the unemployment rate to drop to 3%, the rate remained the same as in the December 2021 quarter. While a lower jobless rate has sprung some confidence into the labour market, it has also rung alarm bells with the Reserve Bank.
The Reserve Bank of New Zealand (RBNZ) is expected to continue its monetary policy tightening spree amidst tight labour market conditions. Higher interest rates are consistent with the RBNZ’s target of reducing inflation to more palatable levels. Additionally, the RBNZ believes labour market strength would help adjust to higher interest rates.
Workers are more likely to switch to higher-paying jobs due to a tight labour market. This has further increased the possibility of interest rate hikes by the RBNZ in the coming months. The interest rate hikes could fuel a fall in property prices, impacting housing demand. It will be enticing to see how economic conditions unfold in the future in the NZ economy and impact consumer and business sentiment.