Labour markets prove resilient

We have been arguing for some time that the unemployment rate would not rise as much as most believed in either Australia or New Zealand. We remain confident in those forecasts. Admittedly, the unemployment rate rose from 4.0% to 5.3% in New Zealand in Q3. That was largely due to the phasing out of the government’s generous wage subsidy scheme which covered more than 50% of the labour force in Q2, narrowing to less than 15% in Q3. The complete end of that scheme in Q4 could result in another rise in the unemployment rate at the end of this year, though the employment boost from temporary election jobs should offset any weakness. And forward indicators are largely consistent with our view that the unemployment rate is close to its peak already. In Australia, the surge in the participation rate to around its pre-virus level means that further gains in employment as Victoria reopens will drag the unemployment rate lower again. Our forecasts imply that the unemployment rate will not rise as much as the RBA and the RBNZ anticipate. That’s one reason why we no longer expect the RBA or the RBNZ to ease policy further.