Population exodus, shrinking economy in New Zealand spells trouble for Australia
New Zealand’s economy is shrinking, unemployment is through the roof, and an emergency rates megacut is on the horizon. Is Australia next?
The New Zealand economy is shrinking. Their economic growth has gone backwards sharply, tempting the Reserve Bank of New Zealand into an emergency-style megacut. And unemployment is still soaring.
Is Australia next?
New Zealand’s situation is not identical to Australia’s but there are important similarities that should make us worry. They should make New Zealanders worry too, because when their economy goes to heck, they usually just jump on a plane and find a job over here instead. If both countries go down the gurgler at once, that’s not possible.
Here’s the story in NZ:
Growth has basically stopped, while unemployment has shot upwards.
As the next chart shows, the NZ economy shrank at a startling 0.9 per cent in the last quarter. That is quite a big fall. And it’s not the only bad quarter they’ve had recently. They put together two shrinking quarters in 2024 as well. That, technically, is what we call a recession. Now they need to pull their finger out to not have another one.
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Australia’s economy has performed far better over this period. Our unemployment rate never got quite as low as theirs, but it also hasn’t snapped back. Kiwi unemployment has returned to levels well above their pre-pandemic situation.
No wonder NZ is emptying out, with thousands of citizens buying one-way tickets on Air New Zealand to fill the office chairs of Brisbane, Melbourne and Sydney. Between March and June this year, New Zealand’ population shrank.
The NZ migration story is different to Australia’s. While we are importing people hand over fist, they are growing their population slowly – and sometimes even going backwards. You can’t say for sure that this proves Australia is right to leave migration rates high, but you can’t say the alternative is a proven winner.
It’s not like NZ has sacrificed its economy to fix its budget, either. Their budget balance, is, in technical terms, cooked.
“The government’s books have taken a hammering over the past six years or so,” said the NZ Treasurer in her Budget speech earlier this year. “Spending has risen sharply. So has government debt.”
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The same is true in Australia. Although our recent fiscal trajectory is slightly better, with record high taxes helping pay for our very high spending, our debt load is still enormous.
So are we just NZ on delay? Will we be next to see the unemployment rate shoot up? Certainly recent signs are not good.
The latest job advertisement index shows far fewer job ads.
“ANZ-Indeed Australian Job Ads in September saw the largest monthly decline since February 2024, dropping 3.3%,” said ANZ economists in a note to clients on Tuesday. “On a per unemployed person basis, both ANZ-Indeed Job Ads and ABS job vacancies have declined to their lowest rates since early 2021.”
It’s worth remembering – we need to have lots of new jobs being constantly added to our economy to simply soak up the current growth in our working age population. But in our latest employment statistics the number of people employed actually fell by 5000 (seasonally adjusted). The unemployment rate held steady, but only because enough people dropped out of the workforce that fraction of Australians looking for work was stable.
In NZ the RBNZ is expected to drop the hammer, cutting rates by a whopping 0.5 per cent on Wednesday afternoon to try to give the economy a bit of breathing space. Their cash rate is already down to 3 per cent and falling. Ours is 3.6 per cent, and the RBA recently declared interest rates did not need to fall because the labour market was “stable’.
If the NZ experience is any guide, they could be wrong about that. And if so, a hefty interest rate cut could be coming to Australia as well.
Originally published as Population exodus, shrinking economy in New Zealand spells trouble for Australia
