The economy is currently struggling to move past years of extended fragility. This slow recovery is being further hindered by global factors, including heightened geopolitical tensions and instability in the international financial markets
New Zealand’s unemployment rate hit a decade-high of 5.4 per cent in late 2025, suggesting that while the economy is trying to bounce back, the recovery will be slow. This slight increase from 5.3 per cent caught economists by surprise, as many expected the rate to hold steady.
While experts have noted a positive trend in recent economic activity indicators, the increase in the number of people out of work complicates the financial outlook. Because of this labour market weakness, it appears the Reserve Bank of New Zealand (RBNZ) is still a long way off from reversing its aggressive interest rate cuts.
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The economy is currently struggling to move past years of extended fragility. This slow recovery is being further hindered by global factors, including heightened geopolitical tensions and instability in the international financial markets.
Abhijit Surya, an economist at Capital Economics, noted that the small rise in the jobless rate doesn’t tell the whole story. He pointed out that the underlying conditions of the labour market are actually beginning to show signs of improvement, even if the headline number suggests otherwise. However, he added that Capital Economics does not expect the central bank to hike interest rates this year, despite what many in the market are currently predicting.
At the same time, evidence of an economic rebound is appearing, which brings the added challenge of rising inflation. The consumer-price index grew by 3.1 per cent year-on-year in the fourth quarter, coming in slightly higher than the 3.0 per cent forecast.
This inflation rate is now sitting above the RBNZ’s preferred target range of 1 per cent to 3 per cent, marking its highest level since the middle of 2024. While the annual rate has dropped significantly from the 7.3 per cent peak seen in mid-2022, it has been rising every quarter since the end of 2024, when it sat at 2.2 per cent.
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Data from Stats NZ revealed a unique situation where both employment and unemployment figures grew simultaneously in the fourth quarter. The total number of unemployed people reached 165,000, an increase of 5,000 from the prior quarter. Additionally, the labour force participation rate rose to 70.5 per cent, up from 70.3 per cent in the previous three-month period.
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