John Key

Wellington, Feb 4 NZPA - People should not panic about the highest unemployment rate in a decade as there are signs the economy is starting to improve, Prime Minister John Key said today.

The Household Labour Force Survey today the number of unemployed people rose to 168,000 during the December 2009 quarter, taking the unemployment rate to 7.3 percent, its highest level since June 1999.

The jump in the unemployment rate was largely due to an increase in the number of people entering the labour force but who were unable to find work.

The number of unemployed 15 to 24-year-olds rose by 6.4 percentage points to 18.4 percent.

The unemployment rate for Maori reached 15.4 percent during the quarter compared with 4.6 percent for Europeans.

Mr Key said the unemployment rate was a slow statistic to improve and was looking back to last year.

"It is my expectation that unemployment will peak some time this year, hopefully in the first quarter, but the latest by the second quarter. The signs we have seen from the economy are actually encouraging and it is very important people don't panic because they see an unemployment number rising, because it is a rearward looking figure. It always lags what is happening in the real economy," Mr Key said.

"I think you can feel the confidence coming back into the economy but there is a lot of work to be done."

He believed the data showed that people weren't losing their jobs, but more people were looking for work and the economy was not creating jobs fast enough to meet that demand, especially in the areas of retail, accommodation and manufacturing.

Mr Key had in the past expressed hope that the unemployment rate would peak at 7 percent but he said todays' figure was higher than most people expected.

"I think we are likely to be very close to the peak. If we are not at the top then it may be one more quarter, but we are getting somewhere near the top."

Labour leader Phil Goff said the figures showed National's economic policies were failing miserably and not enough had been to stimulate the economy and create jobs.

Mr Key said there were limits to what the Government could achieve in the wake of a global recession.

"I think you will find by the end of 2010 that the economy is performing better under a lot of the measures we have been promoting this year and last year. An economy is like a super tanker it takes a lot of time to turn around and we have had nine years of poor economic policy."

The Government was running a large deficit to stimulate the economy and there was a limit to how much the Government could borrow to keep spending.

Labour's deputy leader Annette King said the Government's work programmes were a drop in the bucket.

Social Development Minister Paula Bennett said the schemes were working well and pointed to an increase of 14,500 people in the working age population.

"There are simply more people joining the workforce, which is outstripping job growth," Ms Bennett said.

"Net migration is part of this picture. New Zealanders are coming home and staying home, choosing to ride out a global recession in New Zealand."

Ms Bennett said the number of those in work dropped by 2000, a marked improvement on the previous quarter which saw a decrease of 16,000 people in work.

The jobless figure is higher than that forecast by Treasury, Reserve Bank and the Labour Department.