Unemployment may still lag economic growth news

Unemployment rates will continue to lag for the next six months, despite forecast growth in GDP pointing to signs of an economic recovery, a leading economist says.

The Reserve Bank has forecast a 0.6 per cent growth in GDP when national accounts for the last three months of 2009 are released later this week.

However Goldman Sachs JBWere analyst Philip Borkin cautions it could be some time before job seekers reap returns.

Borkin has tipped employment growth at 0 - 0.5 per cent for the next six months, until such time as the economy could absorb the rate of labour growth.

Even then, it could be well into 2011 before employment rates returned to pre-recession days of about 0.7 per cent he said.

"What we might see initially is that when firms look at staff requirements they might just pick up the hours of their existing workforce," he said adding many firms opted to cut hours rather than lay off staff during the recession.

"While we will see employment pick up, it won't be substantial. We are expecting a sluggish recovery."

His comments also apply to people in work, with economic growth not necessarily meaning a fatter pay packet in the interim.

ASB economist Jane Turner said retail and manufacturing would be making a strong contribution to growth, while the recovery in construction and services was going to remain "slightly more muted".

Although important, the Thursday GDP stats related to the past. "… what's of more interest is if growth is becoming self-sustaining through 2010," she said.

"Certainly, the foundations are locking into place, with improved business and consumer confidence over the past year."

The lower New Zealand dollar against the Australian dollar was likely to "provide a lending hand" to the local manufacturing and tourism sectors.

Westpac economist Brendan O'Donovan said last week he reckoned the manufacturing sector had expanded by 1.9 per cent during the last quarter of 2009. The "standout component" of the GDP growth was going to be inventory investment, he said.

This kind of stockbuilding was the first stage of every recovery, said O'Donovan.