The first signs that 20-year record low unemployment figures will begin unravelling are expected this week with a forecast of 35,000 people joining the ranks of the unemployed over two years.
The first data is today's release of the labour cost index and separate quarterly employment survey, followed by the household labour force survey data on Thursday.
The unemployment rate was 3.4% in December but was expected to rise to 4.9% by the end of next year, Westpac chief economist Brendan O'Donovan said.
Data out later this week is expected to show the "first serious labour market downturn in a decade", with 45,000 jobs lost during 2008 and 2009.
"Not all affected people will meet the official definition of unemployed.
Many will simply exit the labour force," he said in a statement.
Although up to 4% of the workforce would be without jobs, wage growth was expected to remain strong.
"The other 96% are living through the highest inflation in two decades and they will demand compensation," Mr O'Donovan said.
He forecast unemployment would rise from 3.6% to 3.8% and cautioned that because the labour market was a "lagging indicator", the worst was yet to come.
Both Mr O'Donovan and ANZ chief economist Cameron Bagrie agreed the data would give the Reserve Bank further opportunity to drop the interest-driving official cash rate in September, raising market expectations governor Alan Bollard may drop the rate not by 25 basis points but 50 basis points.
Mr O'Donovan said some analysts and the Reserve Bank were expecting demand for wage growth to fall, as employees would not be successful in negotiating inflation compensation in the present economic environment.
"The low wage growth hypothesis lacks supporting evidence," he said.
He predicted wage growth demands because expectations were based on a tight relationship between inflation and wages, which had tracked one another historically.
He said the job downturn would not be a "one size fits all" scenario, as there would be a continued decline in real estate, residential construction, retailing, finance and further "shake-outs' in the meat processing sector.
Silver Fern Farms had in past weeks made almost 1000 staff redundant in restructuring across North and South Island plants because of the falling number of lambs available to kill.
Mr O'Donovan said unlike the strong dairy sector, which would continue to enjoy low unemployment, cities would experience a more severe downturn.
Mr Bagrie said weakness in employment growth would come through the housing-related sector, as it did in the quarter to March, and the wholesale and retail sectors, business, financial services and construction would be at the forefront of job losses.
The unemployment figures were a "lottery", given the volatility abounding, but he expected the jobless rate would rise to an 18-month high.
