The RBA is flagging a new challenge for Australia - growth, with less jobs

Youth unemployment. Photo: Getty Images

The Reserve Bank of Australia lifted its economic growth and inflation expectations but left jobs growth forecast pretty much intact, pointing to an emerging challenge for the the nation: jobless growth.

The central bank in its quarterly statement on monetary policy (SoMP) forecasts gross domestic product to rise between 2.75% to 3.75% in 2018, up from 2.5% to 3.5% previously and the underlying inflation to be around 2% in early 2018. It, however, continues to see the unemployment rate to continue to tread at 5%-6%.

Australia’s unemployment rate held at a one-year high of 5.9% in March and the number of unemployed workers increased by 4,000 to 753,100, government statistics showed last month.

The challenge RBA is flagging is not new globally. Developed nations emerging from the global financial crisis have struggled to generate enough employment as automation picked up and companies moved to slash cost. While Australia’s economy, which is transitioning away from a once-in-a-century mining investment boom, will gain from gas projects coming on stream, its job markets won’t get the boost, the RBA said.

“Even though overall GDP growth is forecast to be above potential, the boost to GDP from higher LNG production is not expected to generate significant employment growth,” the central bank said. “This is because LNG production is very capital intensive and requires relatively few employees.”

LNG exports are expected to continue to grow strongly over the next few years, contributing around half a percentage point to economic growth in each of 2017 and 2018, the central bank said.

The following charts from the RBA shows its expectation for GDP and unemployment rate:

The RBA’s jobs concerns dovetail with its warning last month as it kept rates on hold. It’s note on a softening jobs market was pounced on immediately by Westpac economist Bill Evans, who called it a “downbeat assessment”.

“The unemployment rate is expected to edge slightly lower over the forecast period,” the RBA said in today’s SoMP. “This suggests that spare capacity in the labour market will remain over the next few years.”

The spare capacity would hurt wage growth over the “next few years” with the measure expected to pick up at a slower pace than had been forecast three months earlier, the RBA said.

“While the central forecast is for the unemployment rate to edge slightly lower over the forecast period, there is uncertainty about how much spare capacity there will be over the next few years,” it said.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.