Current World Economy- New Zealand’s Unemployment Rate At Record Lows and China’s Unexpected Interest Rate Cut

With prolonged trade tensions and inconclusive negotiations between two of the strongest economies of the world intensifying the cyclical slowdown in the global economy, contraction of the global automobile production amid higher tariffs, policy uncertainty and easing of macroeconomic policies as external headwinds to growth rise, the present global economic stance is highly vulnerable to micro and macro factors.

According to UN’s Department of Economic and Social Affairs, the world trade growth has braked sharply over the past year. Major central banks have intervened with monetary policies amid increased investor risk aversion and financial market volatility. There are signs of deteriorating business confidence which is likely to hurt investment growth.

In this article, we would look at the recently released unemployment statistics of New Zealand and China’s unexpected interest rate cut.

New Zealand’s Unemployment Rises To 4.2% Though Underutilisation Slumps

New Zealand's official data agency, Stats NZ Tatauranga Aotearoa released the country’s unemployment statistics for September 2019 quarter on 6 November 2019:

• The unemployment rate (seasonally adjusted) rose to 4.2% after a drop to an 11-year low in the June 2019 quarter. It has largely been tracking down since late 2012, though it is back to the level witnessed in the March 2019 quarter.
• The underutilisation rate (seasonally adjusted) dropped to 10.4 percent- the lowest rate since June 2008 (quarter) where it was recorded as 9.9 percent.
• The number of people (seasonally adjusted) who were underutilised was 295,000, down by 18,000- marking the first incident since the March 2009 quarter that this has been reportedly under 300,000.
• The underutilisation rate for women fell to 12.6% - the lowest rate since the September 2008 quarter (where it was 12.6%);
• The underutilisation rate for men fell to 8.3% - the lowest rate since the December 2007 quarter (where it was 7.5%)
• The number of (unadjusted) people underemployed decreased by 15,100 over the year, driven by 11,900 fewer (unadjusted) underemployed women;
  • Of this total decrease, 11,600 fewer were actively seeking more hours wherein 8,200 fewer underemployed women were actively seeking more hours.
  • Of this total decrease, 7,700 came from a decrease in underemployed 15–24-year-olds.
• The seasonally adjusted employment rate remained steady at 67.5%;
  • For men, it remained steady at 72.2%;
  • For women, it slightly slumped to 62.9% (down from 63% in the June quarter).
• Over the September quarter, 6,000 more people were employed and the annual increase in the number of employed people was by 23,000.
• In full-time, the number of people was up by 51,800 (Using unadjusted figures), reflecting 33,400 more women;
• In part-time, the number of people was down by 28,000 over the year, reflecting 21,900 fewer women;
• The labour cost index salary and wage rates (incl. overtime) increased by 2.4% during 2019 to the September quarter;
• Public sector wage inflation (annually) was 3%, and private sector wage inflation was 2.3%.
• The avg. ordinary time hourly earnings (annually) was up by 4.2% (measured in the quarterly employment survey)
  • Annually, the public and private sectors were up by 3.9%.

(Source: Stats NZ)

Catalysts Of New Zealand’s Unemployment Statistics

The slump in underutilisation was largely propelled by a slump in the number of underemployed people, particularly those who work part time but intend to work for more hours.

The decrease in underutilisation was catalysed by a dip in the total underemployed people, down 15,000.

When it comes to employment, the increase in the number of employed people was essentially shaped by men (up 6,000), and the number of employed women followed suit, rising slightly (up 1,000).

It was noted that through the year, there were more women working in the full time and less working part time, and there was a noticeable upsurge in the median hours worked by women. As an employee should be working part time to be deemed as underemployed, these changes may have caused the decline in underemployment.

China’s PBOC Trimmed Interest Rate on Medium-Term Lending Facility

Most central banks govern the price of money in an economy. Since quite a while, China’s Central Bank, The People’s Bank of China (PBOC) has been thriving to liberalise its interest rate system to boost the role of markets in the economy.

With the intent to bolster up a slowing economy (also the world’s second-biggest economy) hit by weaker demand at home and abroad, PBOC cut the interest rate on its medium-term lending facility (MLF) for the first time in over 3 years. This has prompted Chinese stocks to jump higher and bond yields to fall, as investors expect further easing.

The interest rate on PBOC’s one-year MLF (the benchmark against which PBOC lends to China’s commercial banks) was lowered by 5 basis points to 3.25% (previously 3.30%), though a solid reason for the move was not defined. Experts believe that the decision was made to push down the Loan Prime Rate (LPR, which has remained constant since 2015), the lending rate introduced in August 2019, to consequently aid small-to-medium-sized businesses that are struggling amid China’s slowdown.

It should be noted that the Chinese GDP is growing at its slowest pace in over three decades. The fragility in the economy has been beaten by a global slowdown and protracted trade tensions.

The move is also reckoned to be a proactive and direct step to curb borrowing costs and marks the first of the more anticipated PBOC rate cuts, though it could be restricted on the back of the fear of new liquidity which could inflate a property bubble and increase inflation (which touched a six-year high recently).

In an ideal scenario, interest-rate cuts are likely to put depreciation pressure on a currency. Upon the rate cut, the yuan reached its strongest stance in about 3 months, rallying under the figurative level of 7/dollar. Experts believe that this could be a positive sign about a probable trade deal between the world’s two biggest economies, currently huddled in a trade war.

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