'Prepare now for a challenging 2023': chief economist

In a stark warning for the coming year, ASB New Zealand said that unemployment will rise as a result of high inflation and interest rates.

"Unemployment is set to rise, partly through some job losses, but mainly as the population grows and more people miss out on work while job creation stalls in a weak economy," warned Nick Tuffley, ASB chief economist, in the bank's latest quarterly economic forecast.

Employers will also likely focus on retention efforts to hold on to talent while recruitment remains challenging, according to Tuffley.

"Some businesses are likely to want to hold onto staff rather than actively cut back," Tuffley said. "Recruitment remains challenging at present, with some skills in short supply. Businesses will have an eye on ensuring they have the capacity and capability to manage through the eventual recovery."

New Zealand's unemployment rate is currently at 3.3%, according to data from Stats NZ. With a tight labour market, the government has been ramping up efforts, including expanding the Green List, as employers air their grievances on their recruitment challenges.

Tourism a bright spot

The return of tourists in New Zealand can offer some help to the economy, but it will likely be affected by the lack of staff from the tourism and hospitality sectors.

"This is a sector that's rising from the ashes and needs more people in the right places, particularly Queenstown. In contrast to other areas of the economy, tourism may continue to face staff shortages, placing pressure on an industry that desperately needs a successful summer. Much will depend on the ability to attract staff from different regions, industries and even abroad," Tuffley said.

Queenstown is tourism hotspot in New Zealand that was hit hard by the pandemic, but even with measures in place from the government, operators in the town said nothing has changed.

The recruitment challenges outlined in the forecast can already be seen in the Restaurant Association of New Zealand's recent announcement that the hospitality industry would need "another 30,000 employees" so businesses can keep up over the summer period.

"We need the staff to be able to capitalise on increasing visitor numbers, otherwise it is a missed opportunity," said Restaurant Association chief executive Marisa Bidois in a Stuff report.

'Economy's going nowhere'

Despite tourists' return, the 2023 economic outlook for New Zealand is still "tough," according to Tuffley, as people and businesses are urged to prepare.

"Regardless of whether we actually dip into a recession or not, the New Zealand economy's going nowhere for a period of time," he said in the ASB Quarterly Economic Forecast. "Inflation is proving stubbornly high, and we don't expect it will fall below the Reserve Bank's three-per-cent target ceiling until mid-2025."

Operating costs for employers may also continue rising as non-tradable inflation continues to accelerate, according to the economist.

"Non-tradable inflation, which is linked to domestic wage growth, is pushing up businesses' operating costs and may continue to accelerate until the middle of 2023," said Tuffley. "To curb this wage-price spiral, we expect the RBNZ (Reserve Bank of New Zealand) to press on with increases to the Official Cash Rate, which we forecast to peak at 5.5% in mid-2023 and remain high for a year."

The economic slowdown will also affect household durables, said Tuffley, as discretionary purchases will likely be hit.

"The Christmas mood is likely to be downbeat, spending patterns will change, and businesses in these exposed sectors need to be ready to adapt to changing customer needs.”