Unemployment higher than during GFC and rising - economist

Job-seeker calculator
Kiwis have yet to see the recession bite. Photo credit: Getty.

A leading economist says the number of unemployed Kiwis is now higher than during the Global Financial Crisis - and the worst is yet to come.

The forecast comes just after lockdown began on March 26, when much of New Zealand's economy came to a grinding halt. With spending ceasing and widespread uncertainty, 30,000 jobs were lost in four weeks.

Based on data from the Ministry of Social Development (MSD), the number of Kiwi jobseekers had risen from 145,000 to almost 175,000 (174,630) in the four weeks to April 17. Economist Shamubeel Eaqub said that by comparison, it took six months for a similar increase to occur during the GFC.   

"The number of jobseeker benefits, relative to population, is now just above the peak during the 2008/2009 GFC recession, when the unemployment rate peaked at 6.5 percent," Eaqub said.  

With many employees currently working reduced hours, the latest figures are likely to underestimate the effect on spending and therefore, job security.   

"We will face further waves of business closures and job losses in coming weeks and months: this recession will surpass anything in living memory," he said.

Eaqub predicts three waves of job losses: The first is now, when many businesses are downsizing, followed by a second wave when businesses run out of cash due to a reduction in spending. Following that, there's the "recession pop-up."

"Post-lockdown, we'll probably see a slight surge in spending - it's not like a normal recession where things keep falling away," Eaqub said.

If people don't have a job, or income and hours have fallen, they'll spend less.

"[After the] surge in level 3, level 2, we'll start to see the recession bite." 

As the impact of the global downturn emerges, it will become clearer how industries such as exports and tourism will be affected. Unlike other recessions, it's going to be a bumpy road. 

"The recession from the lockdown is really deep: the recession that comes afterwards is not as big because things are allowed, but we don't have the jobs and the confidence," Eaqub added.

Graph showing number of jobseeker benefits over time
The number of jobseeker benefits relative to population. 2008/2009 peak rate: 34.6 per 1000 population. Current rate to week ending 17 April: 35.2 per 1000 population. Photo credit: Supplied: Sense Partners
Annual increase in jobseeker benefits by region w.e. 17 April 2020 compared to 2019.
Annual increase in jobseeker benefits by region w.e. 17 April 2020 compared to 2019. Photo credit: Supplied: MSD/Sense Partners.

Jeremy Couchman, senior economist at Kiwibank, said that earlier estimates had pegged unemployment to rise to 7.5 percent to 8 percent by the end of 2020 to early 2021. After the lockdown, he now puts that figure higher.

"As a ballpark, we forecast a peak of 9.5 to 10.5 percent."

Timing of the unemployment peak would be around the end of the year - although numbers have ramped up quickly.  

"That would suggest the peak will probably happen a bit sooner." 

Current unemployment forecasts from ANZ estimate the unemployment rate at 10.1 percent in December 2020 and 7.8 percent in December 2021.