New Zealand labour market to tighten further, Q4 unemployment rate likely to fall to 4.7 pct - ANZ

Markets await New Zealand labour market data on Wednesday which may show the jobless rate held below 5 percent. Despite record net migration and the highest participation rate ever, firms are finding it difficult to find skilled labour.

New Zealand participation rate hit a record of 70.1 percent in the three months ended September. The current lift in the participation rate was another signal the labour market was improving. Tied in with the improving jobless rate which dropped below 5% last year for the first time since December 2008, it was another sign of an improving labour market.

However, wage growth is soft, especially given the increasing difficulty in finding labour. Softness in wage growth was partly attributable to the impact of migration, lifting the supply of new workers. If migration flows soften as expected in the coming 12 months, there is potential for the slowing growth in the supply of labour which will enable real wages to move higher.

"We expect employment growth of 0.8% q/q. And while a higher participation rate (to 70.2%) helps to boost labour supply, we see the unemployment rate falling to 4.7%," said ANZ in a report.