It seems the investment community does not hold the RBA’s view that Australia’s unemployment rate will hold at around its current level, with a number of analysts fearing a jobless “tidal wave” over the next two years. From the Brisbane Times:
“I think there is a real danger that next year we could see unemployment going up,” said Tyndall Investment Management’s head of fixed income Roger Bridges, adding that record low interest rates are needed to keep the momentum in spending and housing going.
AdvertisementBaillieu Holst quant strategist Mathan Somasundaram expects a “tidal wave” of unemployment to hit in the next two years, as more jobs are lost because of an ever-shrinking mining industry and substantial cuts across the car and airline industries, as well as the telco sector, manufacturing and government departments…
Regular readers will know that I share similar concerns over the medium-term. These concerns are centered on two main factors: 1) the unwinding of the once-in-a-century mining investment boom; and 2) the shuttering of Australia’s car industry by 2017.
While there is uncertainty over the timing of the mining investment cliff, the below forecast from Deloitte Access Economics is as good as any, and highlights the expected trajectory of the decline:
According to Reserve Bank of Australia (RBA) estimates, the mining sector accounts for nearly 10% of Australian employment, with most of these jobs in areas directly related to mining capital investment, such as construction workers, engineers, and other mining services. As mining projects are completed, much of the labour utilised during the construction phase will no longer be required, leading to a material increase in unemployment unless other areas of the economy can expand sufficiently to fill the void.
For its part, between 30,000 and 50,000 direct jobs are also at risk from the shuttering of Australia’s car assembly industry, with more losses possible indirectly.
While stronger dwelling construction and other domestic activity could help offset some of these losses, the fact is employment needs to grow by around 15,000 per month just for the unemployment rate to remain steady (assuming a stable participation rate).
This seems unlikely in my view in light of the above headwinds.
