New Zealand faces a rising unemployment rate, prompting a surge in emigration to Australia. Despite a record-high labor force and high employment levels, the country is grappling with economic challenges. This article compares New Zealand's situation with Australia's, highlighting contrasting strategies employed by their central banks to combat inflation.
New Zealand 's unemployment rate climbed to 5.1 percent in the December quarter, up from 4.8 percent in the September quarter. This increase comes with 32,000 fewer employed individuals compared to a year ago, prompting a surge in Kiwis seeking better opportunities in Australia . Despite these challenges, New Zealand boasts a record-high labor force and a high number of employed individuals, with more job vacancies than a few years ago.
However, inflation has decelerated in both countries, and Australia's Reserve Bank is anticipated to initiate interest rate cuts soon.Both New Zealand and Australia have experienced high inflation in recent years. The Reserve Bank of New Zealand (RBNZ) commenced raising interest rates in October 2021 to combat it, eight months ahead of the Reserve Bank of Australia (RBA). Moreover, the RBNZ increased rates to a higher peak of 5.5 percent, while Australia's peaked at 4.35 percent. Following its earlier and more aggressive rate hikes, the RBNZ has already begun cutting rates again, starting in August. Financial markets predict a high probability of the RBA board cutting rates in a couple of weeks at its meeting on February 17-18 (though confirmation awaits).To mitigate inflation, both the RBNZ and RBA raised rates to curb economic activity, acknowledging that unemployment would rise as a consequence. Their aim was to increase unemployment to alleviate wage and inflation pressures. When comparing unemployment rates across countries, caution is warranted as the 'unemployment rate' can obscure crucial details about a country's labor force. For instance, New Zealand's labor force has remained stagnant over the past 12 months, a fact not readily apparent from its unemployment rate. In August, New Zealand's central bank was compelled to initiate rate cuts as the economy entered recession, prompting inquiries from global counterparts about the potential for a similar scenario in their own countries. Thousands of Kiwis have left for Australia, while others have become discouraged by the job search and have stopped looking for work. If these individuals remained in New Zealand and were counted among the unemployed, the country's unemployment rate would be significantly higher.For 12 months, New Zealand's labor force participation rate has been at its highest ever point. Australia, on the other hand, has never had so many people employed. Both the participation rate and the employment-to-population ratio in Australia are at record highs. This suggests that New Zealand's unemployment rate might be downplaying important negative economic indicators, while Australia's is highlighting positive trends. However, when comparing the graphs illustrating these trends, it becomes evident that the strategies pursued by the central banks in both countries to combat inflation have been vastly different.It's important to note that Australia's inflation target is slightly higher than New Zealand's. The RBNZ aims to maintain inflation within a range of 1 to 3 percent over the medium term, focusing on the 2 percent midpoint, while the RBA targets a range of 2 to 3 percent, with a focus on the 2.5 percent midpoint. The subsequent graph explores the central banks' preferred measures of underlying 'core' inflation. Finally, the impact on economic growth in both countries is depicted in the graph showcasing quarterly growth rates for the past 12 quarters, with the most recent data from the September quarter of 2024. New Zealand has experienced three quarters of zero growth and three quarters of negative growth, currently in recession (six consecutive months of negative growth).Australia's economic structure differs significantly from New Zealand's, relying on distinct export markets. Various forces have shaped these economies in recent years. The inflation figures provide the Reserve Bank with the green light to ease its grip on the economic brakes. Australia's population (27.5 million) is also more than five times larger than New Zealand's (5.3 million), and its labor force (15.2 million) is five times bigger (3 million). Nonetheless, the RBA has deliberately adopted a distinct inflation-fighting strategy compared to New Zealand's central bank, placing greater emphasis on employment. 'The board's strategy over recent years has been to set monetary policy in a way that returns inflation sustainably to target in a reasonable time-frame, alongside a gradual easing in labor market conditions to levels consistent with sustainable full employment,' RBA governor Michele Bullock stated. 'The goal underpinning this strategy has been to preserve as many of the jobs that have been created over recent years as we can,' she added
New Zealand Unemployment Labor Market Australia Inflation Central Bank Monetary Policy Economic Growth
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