Morgan Stanley says Australian unemployment is likely to keep rising

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  • Australian unemployment is rising again, increasing to 5.6% in April, according to data released by the ABS.
  • As opposed to most other forecasters, Morgan Stanley thinks unemployment will rise further this year.
  • It says this will act to weaken economic growth and keep wage and inflationary pressures muted, seeing the RBA leave rates unchanged until the second half of 2019 at the earliest.

Australian unemployment is increasing again, lifting to 5.6% in April, according to data released by the ABS.

It’s been slowly edging higher since last last year, largely reflecting that while job growth remains solid, it’s not kept pace with the increase in the size of Australia’s labour force over the same period, resulting in a greater proportion of the workforce being unemployed.

As seen in the chart below from Morgan Stanley, as annual growth in employment has slowed, unemployment has started to climb, albeit modestly at this point.

Morgan Stanley

While most forecasters, including those from the RBA and Australian Treasury, believe that unemployment will gradually move lower in the period ahead, those from Morgan Stanley share a different view.

It thinks Australian unemployment will move higher, an outcome that will see GDP growth slow and keep wage and inflationary pressures muted.

“The more modest labour market outcomes over the past few months have increased our confidence that a deceleration in GDP over 2018 to 2.1% will see jobs growth slow and the unemployment rate drift up to 5.8%,” it says.

“This underpins our view that the prospect of a wage growth recovery is further out, which leaves headwinds for aggregate household income and spending.”

And with an expectation that slower GDP growth will keep inflation and wage pressures weak, Morgan Stanley says the RBA won’t be lifting official interest rates until the second half of 2019 at the earliest.

“We see the RBA comfortably on hold through to the second half of 2019, and potentially longer if the AUD does not continue its depreciation,” it says.

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