Jobless forecast to hit 5pc next year

Fairfax

JOBLESS RATES: Unemployment is heading toward 5 per cent, with some economists expecting 45,000 jobs to be lost in the next 18 months.

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Unemployment is heading toward 5 per cent, with some economists expecting 45,000 jobs to be lost in the next 18 months.

The jobless rate is expected to hit an 18-month high of 3.8 per cent in official figures due this week, with economists expecting worse to follow.

Westpac Bank economists say the job market is "standing on the precipice" of the first downturn in a decade, which will be a shock to Kiwis who have become used to unemployment being under 4 per cent.

Unemployment was 3.6 per cent in the March quarter, but June figures were expected to rise to 3.8 per cent and possibly worse, later moving toward 5 per cent.

ANZ Bank economists said 3.8 per cent would be an 18-month high, but it would not rule out a bigger move.

If the jobless rate is worse than the 3.8 per cent expected then expectations may grow for a 50 basis point cut to official interest rates by the Reserve Bank next month. The central bank cut rates last month to 8 per cent and a further 25 basis point cut next month is seen as a done deal.

Westpac expected unemployment to reach 4.9 per cent by the end of next year. People would lose jobs in real estate, house building, retailing, finance and the meat industry. But there would be more work in agriculture, commercial building and mining.

Some workers may leave the labour force and not look for more work, while others would probably move to Australia. As long as Australia's economy stayed strong, unemployment in New Zealand would be limited, Westpac said.

However, the 96 per cent of the workforce still with a job would demand higher wages in the face of the highest inflation in 20 years, Westpac said. "There is every reason to expect wage demands to be met," its economists said, because of acute skill shortages.

Reserve Bank research also indicated that wages followed consumer price inflation.

Labour Cost Index figures due out today were expected to show a record rise in private sector wages of 3.7 per cent for the year, Westpac said.

The housing-related sectors were at the front of the jobs boom in the past five years, and with the housing market yet to hit bottom, the unemployment rate is expected to move toward 5 per cent, ANZ said. It expected a series of "steady 25 basis point cuts" at every meeting till the end of the year.

Bank of New Zealand economists expected the cash rate to hit bottom at between 5.5 per cent and 6.5 per cent by late next year. About 6 per cent on the cash rate is seen as a "neutral" level.

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