Economists expect unemployment to rise

AUCKLAND: Unemployment probably rose from an 11year low in the September quarter on softer economic conditions but may not be enough to trigger another interest rate cut.

Economists polled by Bloomberg forecast unemployment was 4.1% in the three months ended September 30, versus 3.9% in the June quarter. Statistics New Zealand is scheduled to release the data tomorrow.

Westpac Bank economist Michael Gordon said he expected the unemployment rate to rise to 4.2% with indicators suggesting ‘‘growth was particularly subdued’’ in the quarter.

Mr Gordon said the data would be key for the central bank before its November 13 monetary policy review but ‘‘the RBNZ already shares our view that unemployment will worsen in the near term before it gets better, and we think it would take a substantially worse result than what we’re forecasting to prompt the RBNZ to cut the OCR again at its November review’’.

Westpac economists surprised investors last week when they said they now expected the central bank to keep the official cash rate at 1% this month, although they still forecast another cut early next year.

The central bank has a dual mandate to support maximum sustainable employment and keep annual consumer price inflation between 1%3% over the medium term, with a focus on the midpoint of 2%.

In September, the Reserve Bank kept the key rate on hold and said employment was ‘‘around its maximum sustainable level and inflation remains within our target range but below the 2% midpoint’’.

ANZ Bank also expects the unemployment rate rose to 4.2% ‘‘reflecting belowtrend economic growth,’’ economist Miles Workman said.

According to Mr Workman, annual gross domestic product growth of 2.1% in the second quarter was below ANZ’s estimate of potential growth.

With economic indicators ‘‘suggesting the economy will be growing at a subpar pace for a little while yet, there should be enough cause for concern over the mediumterm outlook to keep the RBNZ on their toes’’, he said.

He still expected the central bank would cut the OCR by 25 basis points this month, saying it would ‘‘signal further cuts are likely to follow if the dataflow and outlook warrant — we expect it will’’.

Mr Workman is tipping the unemployment rate to peak at 4.5% by the end of 2020 before gradually improving as economic momentum slowly recovers.

ASB Bank chief economist Nick Tuffley said he expected the unemployment rate was 4.1% but cautioned ‘‘the risks are tilted towards a weaker result’’.

Mr Tuffley still expected the central bank would cut by 25 basis points this month. — BusinessDesk