More rate cuts expected as Australian unemployment heads for 11-year high

Reserve Bank of Australia
Australia’s sluggish economy could need further rate cuts by the end of the year as unemployment looks set to hit an 11-year high, economists have warned.

Business confidence fell from seven points in February to four in March, according to the National Australia Bank monthly survey on Tuesday. Business conditions remained subdued but lifted slightly to one point in March.

Optimism was at its lowest level since its post-federal election bounce last year and mining was the least confident industry, the report said.


“Rather than conditions rising to confirm the improvement in confidence, it seems that confidence is beginning to succumb to the continuing softness in conditions,” NAB economists said.

With unemployment figures on Thursday expected to show the jobless rate at 6.1%, its highest since 2003, the authors of the report believe that the Reserve Bank of Australia may be forced to reduce the cost of borrowing again.

RBA governor Glenn Stevens has already reduced the cash rate eight times since November 2011 in an effort to stimulate the non-mining sectors of the economy.

“We’ve been anticipating one last rate cut,” said Rob Brooker, NAB’s head of Australian economics and commodities. “Nothing we have seen so far would cause us to revise that.”

Although the survey showed that confidence had improved since last year, the labour market was still weak, Brooker said. The mining sector continued to shed jobs as construction projects tailed off and the federal government cut jobs.

Most industries did experience improved conditions in March, except the transport and utilities and wholesale industries, the report said.

The wholesale industry, which NAB considers a bellwether industry, deteriorated heavily and was by far the weakest, while recreation and personal services saw the best conditions.

Although there had been pockets of improvement in the economy, a more broad-based pick-up was needed to sustain current confidence levels, NAB economists said.