Australian jobless rate will stay high for another two years, warns gloomy RBA

http://www.theguardian.com/world/2014/aug/08/australian-jobless-high-two-years-rba

Version 0 of 1.

Unemployment will stay high for another two years, growth will continue to be below par and inflation will fall, according to a downbeat assessment of the economy by the Reserve Bank.

The RBA’s warning comes a day after Australia posted its highest jobless rate in 12 years at 6.4% and sent the Australian dollar to a two-month low.

In its quarterly statement on monetary policy released on Friday, the RBA said the economy was struggling to adjust to the winding down of the mining boom.

“The key uncertainties for the domestic economy continue to be centred on the timing and extent of the expected decline in mining investment, the associated rise in resource exports and the further strengthening in non-mining activity,” the RBA said.

“While this `transition’ has been unfolding for some time, helped in part by the very low level of interest rates, there is no guarantee that the rebalancing of spending will be a smooth process.”

It suggested that the RBA will be in no haste to raise interest rates, which have been stuck at an all-time low of 2.5% for the past year.

CommSec economist Savanth Sebastian said it was “no surprise that in such an environment policymakers will maintain stable interest rates and watch and see”.

After a positive start to the year, economic growth has slowed to a more moderate pace as exports declined and retail sales and consumer confidence weakened.

The RBA expects growth will be a little below its long-term trend of around 3.25% over 2014/15 before picking up in the following financial year.

“The unemployment rate is likely to remain elevated for a time and is not expected to decline in a sustained way until 2016,” the central bank says.

Opposition leader Bill Shorten noted unemployment hasn’t been this bad since Prime Minister Tony Abbott was the employment minister in the Howard government.

In a speech to the National Small Business Summit in Melbourne he blasted the government’s “half-baked” plan that forces unemployed people to apply for 40 jobs a month.

But Abbott said everything his government did was about creating jobs and building prosperity. “Our job is to make it easier for (business) to do their job, which in turn is creating jobs,” he told reporters after addressing an Australian Industry Group lunch in Sydney.

However, the RBA said uncertainty surrounding which new budget policy initiatives will be legislated could result in either stronger or weaker growth than forecast.

It has cut its 2014 year-end inflation forecast to two per cent from a previous 2.75% prediction made in May following the abolition of the carbon tax.

The timing of the direct effects of the repeal will depend on the extent to which savings on utility costs are passed on to customers, it says.

The Australian Competition and Consumer Commission put 250 energy companies on notice this week to estimate to their customers how much the removal of the carbon tax will affect prices.