Jobs recover but weak wages keep OCR pressure contained
Westpac senior economist Michael Gordon says New Zealand’s economy was “moving into recovery mode” by the end of 2025, and the labour market is now showing signs of stabilising too – even though it usually lags the wider cycle.
“We expect the December quarter labour market surveys (to be released next Wednesday) to show that the unemployment rate has reached his peak, with jobs growing just fast enough to meet population growth,” Gordon said. Given the slack that still exists in the labour market, “it’s likely that wage growth remained subdued.”
Westpac is forecasting a 0.3% rise in employment over the December quarter, broadly matching the pick‑up seen in the Monthly Employment Indicator. A 0.3% lift would “broadly match the rise in the working‑age population over the quarter”. Assuming a steady participation rate of 70.3%, Westpac expects the unemployment rate to hold at 5.3%.
BNZ sees a similar story, with head of research Stephen Toplis highlighting “early signs of improvement” in the jobs market and expecting unemployment “to drop… in a quarter or two” as hiring slowly catches up with the growing labour supply, RNZ reported.
In Westpac's NZ labour market preview, Gordon notes that hours worked have already risen strongly, which is typically where an upturn shows first.
Employers “have scope to get more out of their existing workers, before resorting to new hiring”, and Westpac expects the unemployment rate to be “only slightly below 5% by the end of this year,” he said.
Wages contained, keeping pressure off rapid hikes
For mortgage advisers, a key message is that a softer labour market is keeping wage growth in check, limiting the risk of an aggressive rate‑hike cycle even as activity recovers.
Westpac expects a 0.5% quarterly rise in the Labour Cost Index for December, leaving annual growth “at around 2%”.
While cost‑of‑living pressures have “reared up again as a concern for households”, Gordon says there has been “little room to negotiate larger pay increases”. Business surveys suggest workers are “a little harder to find again, particularly for more skilled roles”, but there is still “no indication of firms bidding up to attract or retain workers.”
BNZ’s own report with SEEK shows job ads up about 7% on a year ago, and Toplis cautions that while conditions should be “better” by mid‑year, not all new roles will match the skills of today’s unemployed – and many households are still trying to cope by working more hours rather than securing higher pay.
Implications for advisers and interest rates
Gordon expects the Reserve Bank to hold the OCR at the February Monetary Policy Statement, with labour data shaping “the timing and extent of future rate hikes” rather than driving an immediate move.
For advisers, that points to a “higher‑for‑longer but not spiralling” rate environment: the jobs market is stabilising, unemployment is near its peak, and wage growth is modest. That combination supports cautious optimism for clients’ job security, but still demands robust servicing tests, careful refix timing, and conversations about how borrowers would cope if rates edge higher again before they eventually fall.
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