Economists urge urgent action amid recessionary signs
Kiwibank economists are calling for further monetary stimulus, warning that New Zealand's labour market data shows clear signs of economic stress.
“Demand for labour has clearly softened, and wage inflation is quickly cooling. We should have stimulatory monetary policy (not the current restrictive setting). We expect another 100bps of rate cuts to 2.5%,” said Jarrod Kerr, Mary Jo Vergara, and Sabrina Delgado (pictured above, left to right) in their latest market update.
ASB also flagged concerning labour market trends, noting that job numbers fell 0.2% in Q1 and wages recorded their slowest private-sector growth in three years. With inflation easing, ASB now expects up to 75 basis points of rate cuts over the remainder of 2025.
Hours worked and wage growth in decline
“Employment barely grew, hours worked was down, and wage growth cooled,” the Kiwibank team said.
They added that hours worked had declined 2.9% over the year—marking five straight quarters of contraction—while the private sector wage bill grew just 2.5%, down from a 4.5% peak.
“More and more workers are receiving smaller and smaller pay rises,” the team said, highlighting how the labour market is becoming less attractive as job quality erodes.
Participation down, underemployment rising
Even as the official jobless rate holds, underemployment is growing. Full-time employment has fallen, while part-time work and underutilisation are both up.
“Workers may not be losing their jobs, but many are losing valuable hours,” the Kiwibank economists said.
The participation rate also dropped again to 70.8%, continuing a steady decline from the 72.4% peak in mid-2023.
Rental oversupply puts pressure on investors
Kiwibank also pointed to growing pressure on property investors, noting that “rents are falling” as more properties are returned to the rental market.
“Investors, unable to sell their investment property (at the price they want/need), are putting houses (back) up for rent,” the team said.
Global developments support cautious stance
The rate outlook remains sensitive to global trade dynamics, with the US and UK recently announcing a partial de-escalation of tariffs.
“In some good news, we got the first trade ‘deal’ out of the US last week,” Kiwibank said—but warned other countries may not receive the same treatment.
“The uncertainty surrounding Trump’s tariffs demands caution as well,” they added, reinforcing the case for accommodative policy.
Read the full Kiwibank commentary here. For additional insights, read the ASB report.
