New Zealand’s Unemployment Rate beat expectations in the first quarter of 2008, but still rose to the highest level in six years, to 5.0%. Expectations called for the number to leap substantially higher, to 5.3%.
Laborers are possibly becoming increasingly disenfranchised with the job market. Work-force participation among those who are willing to work slumped to 68.4% from 69.2%. During this time, New Zealand labor compensation (when excluding overtime pay) rose by the lowest level in five years, by only 0.5%.
In the first two meetings of the year, the Reserve Bank of New Zealand slashed the overnight cash rate by 200 basis points to 3.0% in an effort to boost credit and lending. The RBA’s strategy may be counteractive. Last month, the International Monetary Fund released its forecast for New Zealand. In it, the IMF stated that one of the largest threats to their economy is their heavy dependence on short-term foreign borrowing from abroad. RBNZ easing may be viewed as a threat by foreign lenders seeking relatively greater yields from the island-nation.