Australia’s unemployment rate is on the cusp of a significant increase, according to warnings from three major financial institutions.
- Some senior economists are tipping 50,000 retail jobs could also go
- These analysts tip the unemployment rate will rise to 5.5 per cent
- KPMG is forecasting economic growth of just 2.3 per cent this financial year
That is in contrast to last week’s parliamentary testimony from Reserve Bank governor Philip Lowe, in which he said employment would continue “growing strongly”.
The construction sector has enjoyed a once-in-a-generation boom, creating hundreds of thousands of jobs over the past decade.
But official data released yesterday shows Australia’s construction sector has not only hit the brakes, it has moved sharply into reverse, and with that comes the potential for mass job losses.
“We’re tracking construction job advertisements at the moment and they’re suggesting that in the next six months or so we could see around 50,000 job losses,” UBS economist Carlos Cacho said.
AMP’s head of investment strategy Shane Oliver agreed with that forecast.
“We wouldn’t argue with 50,000,” he said.
“Whatever it is, it’s going to be a significant number.
“Obviously construction is a significant employer … and there will be a net loss of construction jobs as the housing downturn starts to become more evident as we go through this year.”
Growth in the construction sector had been fuelled by the recent huge surge in property prices, especially on the east coast.
But construction activity has fallen as house prices in Sydney and Melbourne have recorded double-digit declines.
Retail jobs may also go
There is also evidence that property investors, home owners, and those in and around the construction industry have become more thrifty, which is producing significantly less foot traffic in shops and malls around the country.
AMP believes this may also lead to sizeable job losses in the retail sector.
“This is probably even more so, in terms of construction, in retailing,” Dr Oliver warned.
“Consumer caution might step-up a notch over the course of the next 12 months as house prices come down.
“We’re looking at quite a slowdown in consumer spending, that’s going to weigh on employment in retailing. You’re probably looking at least another 50,000 or so [job losses], but it’s very hard to put a precise number on it.
“I think the key point here is that the very strong jobs growth we’ve seen in the Australian economy over the last two years is likely to slow down, and that’s already starting to become evident in weakness in job vacancies or job advertisements.”
Mr Cacho described AMP’s forecast of at least 50,000 retail job losses as “reasonable”.
Unemployment could rise back to 5.5pc
Combining job losses in construction and retail, and a significant slowdown in the growth of jobs in other sectors caught in the crossfire of the housing market downturn, UBS warned the unemployment rate could rise as high as 5.5 per cent, its highest level since April last year.
“That’s driven by a slowing in jobs growth, so not outright job losses but jobs growth slowing from around the 25,000 pace we’ve seen per month to more like 14,000 by the end of the year,” Mr Cacho said.
“If you saw more weakness in employment growth, you could see the unemployment rate get to 5.5 per cent by the end of the year.”
AMP has the same downbeat forecast on the jobless rate.
“We see the unemployment rate rising to 5.5 per cent,” Dr Oliver predicted.
“We’ve still got solid population growth — that’s driving a lot of entrants into the labour force — but we think the rate of growth in the economy will fall below the level necessary to stop unemployment rising.”
Dr Oliver told RN Breakfast both the Reserve Bank and the Federal Government were still too optimistic on the outlook for the economy.
Leading accounting firm KPMG has also run the numbers on the economic outlook.
Its economic modelling matches up with AMP’s data.
“The Australian economy, just like every other economy, experiences a business cycle,” the firm’s chief economist Brendan Rynne said.
“In that business cycle there’s a peak, a trough, an upswing and a downswing.
“Where we are at the moment, we’re in a downswing.”
He is not predicting mass job losses, but he is forecasting a rise in the unemployment rate to 5.5 per cent as competition for fewer job openings grows.
That, he warned, could further weaken the economy.
“So we’ve only just recently pulled our forecast down to expect economic growth for the 2019 financial year now to be around 2.3 per cent,” Dr Rynne cautioned.
“That’s below the official Reserve Bank GDP forecast of 2.75 per cent growth.
“The results are showing the economy is much weaker than we had anticipated.”
Two rate cuts tipped for next 12 months, rates could go to zero
The global accounting firm also has its eye out for economic threats from offshore.
KPMG said it had come up with what it is calling a black swan scenario, which could see the Reserve Bank drop official interest rates to zero.
“We have that capacity, we don’t necessarily need to go into some sort of quantitative easing [money printing] arrangement,” Dr Rynne argued.
“We expect the December quarter to virtually have zero [economic] growth, but we’re not seeing the economy retreating or going backwards.”
But, given the concerning outlook for the jobs market over the next 12 months and the resulting economic slowdown, many major financial institutions, now including Westpac, are predicting the Reserve Bank will be forced to cut the official cash rate, not once but twice, by this time next year.
“By this time next year we expect the Reserve Bank to have cut [interest rates] twice: one cut in November, and another cut in February,” said Mr Cacho.
Dr Oliver agreed there would be two moves, but said they would be even earlier.
“By the time we get to around August we think they will see things as weak enough to justify another cut, and then we see another cut in November, taking the cash rate down to 1 per cent by the end of the year.”
But Dr Oliver noted the Reserve Bank would want to have a look at what the federal budget looks like in April, who wins the election and what that means for fiscal stimulus.
Economists are now eagerly awaiting the next official reading on the overall performance of the nation’s economy, to be released by the ABS next Wednesday morning.
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