The Reserve Bank of Australia is positive about the nation’s economic prospects, but isn’t so hopeful about jobs growth.
While economic growth is seen picking up during 2017, it won’t be enough to spur companies to fill up their office, factories and mines with more people.
“Overall growth is not expected to be sufficient to generate much of a decline in the unemployment rate over the forecast period,” the RBA said in its Statement on Monetary Policy (SoMP) on Friday.
The nation’s jobless rate stood at 5.8% in December.
RBA’s caution comes as Australia tries to shrug off a pretty weak period in the labour market. Over 2016, full-time employment decreased by 34,000 workers, alongside a 125,500 increase in part-time work over the same period. Combined, total employment rose by 91,500, according to the ABS. Meanwhile, wage growth fell to the lowest level on record, based on the ABS wage price index, driven by a combination of low inflation, elevated underemployment and below-trend economic growth.
This chart shows the labour market slack
The divergence in labour market conditions across states continued: jobs in mining states of Queensland and Western Australia declined over the year, while they increased in New South Wales and Victoria, which are in the middle of a residential construction boom.
While commodities prices have soared, the RBA cautioned that it isn’t expected to translate into jobs growth.
Commodity prices, which enjoyed a leg up from China’s economic stimulus, will boost the profits of miners but are “not expected to translate into materially higher investment or employment in the resources sector, because the recent increases in prices are widely expected to be temporary,” the central bank said.
At the same time, non-mining business investment remained at “relatively subdued levels” across the country and has only risen strongly in NSW and Victoria.
While some pick-up in non-mining investment is expected over the period ahead, the timing of this upswing remains uncertain, the RBA said.
“The current rate of unemployment suggests that there is still a degree of spare capacity in the labour market, which has contributed to subdued wage pressures,” the SoMP said.
The bank now expects underlying annual inflation returning to its 2-3% target by the middle of 2019 and sees the midpoint of its underlying inflation forecasts sitting at the bottom of its target until the end of 2018.
The central bank cuts its near-term economic growth forecast after the shock 0.5% GDP contraction in the September quarter last year. It now sees GDP expanding 2% year-on-year in 2016, down from its previous forecast of 2.5 to 3.5%. By the middle of this year, it sees GDP averaging between 1.5% to 2.5% before accelerating by years end.
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