New Zealand’s Jobless Rate Rises As Virus Starts to Impede Economy

(Bloomberg) -- New Zealand's jobless rate rose and wage growth slowed in the first quarter as the Covid-19 pandemic started to push the economy toward recession.

The jobless rate climbed to 4.2% from 4% in the fourth quarter, Statistics New Zealand said Wednesday in Wellington. Economists expected a rate of 4.4%. The Labour Cost Index for non-government workers increased 0.3% in the quarter, slowing from 0.6% in the previous three months.

New Zealand is bracing for a recession and a surge in unemployment as border closures and a nationwide lockdown forced many businesses to close and make workers redundant. Unemployment benefit claims have soared and business hiring intentions have slumped, suggesting the jobless rate may rise toward 10% over the course of 2020.

Economists expect the central bank to provide more stimulus next week by increasing the size of its quantitative easing program, while some analysts see a shift to negative interest rates later this year.

“Looking forward it's clear that the labor market will deteriorate markedly in the second quarter,” said Ben Udy, economist at Capital Economics in Singapore. “Business surveys and online job ads are both consistent with a more than 8% fall in employment. The considerable deterioration in the labor market is one reason we expect the RBNZ to cut rates into negative territory this year.”

The New Zealand dollar was little changed after the report, holding its gains from earlier in the day. It bought 60.6 U.S. cents at 11:35 a.m. in Wellington.

New Zealand businesses started experiencing the impact of the virus pandemic through March as the government tightened restrictions on foreign travel, but the nation didn't enter the strict lockdown until March 25. The statistics agency said its data collection was mostly completed before that date.

The government introduced a 12-week wage subsidy to help cushion the initial impacts of the recession, and has paid out NZ$10.6 billion ($6 billion) to support about 1.7 million workers. It will update its fiscal support plans at the budget on May 14.

Today's report showed employment unexpectedly climbed 0.7% from the previous three months. Economists expected a 0.2% contraction. From a year earlier, employment increased 1.6%. The labor force participation rate gained to 70.4% from 70.1% in the fourth quarter.