An employers representative is predicting unemployment could hit 9% as manufacturers struggle to shrug off the world economic downturn.
Employers and Manufacturers Association chief executive Alisdair Thompson says the Reserve Bank's most recent forecast of a 6% peak in unemployment is too conservative.
Mr Thompson says manufacturers are already laying off workers and says if the world economy does not recover before long, more job losses will result.
Manufacturing activity plunged again in November, taking an index on the sector to yet another record low.
The Bank of New Zealand-Business New Zealand performance of manufacturing index fell almost 8 points to 35.4 in November. A figure below 50 indicates the sector is contracting.
The fall was the seventh consecutive decline, putting the index at its lowest level since it was first compiled in 2002.
Mr Thompson says the survey shows weakness right across the sector and his association is now spending most of its time dealing with job losses.
He expects unemployment to peak 50% higher than the Reserve Bank's forecast last week of a little over 6% of the workforce .
"I think it's a modest number. I think it will be at least that this time next year, if not fifty percent worse than that."
Mr Thompson says manufacturers are already cutting staff and with the outlook for the world economy getting bleaker by the day more job losses are in prospect.
Business New Zealand chief executive Phil O'Reilly said with production already at rock bottom, further falls in new orders would create problems.
Mr O'Reilly says there is no clear indication that the sector has reached the lowest point in the cycle and a sizeable lift in activity in coming months is against the odds.
The index shows a slowdown in activity in most regions except Otago and Southland, where manufacturers are continuing to expand their businesses.