Penny Wong sticking by jobless forecasts

23 May 2012, 6:18 pm   -   Source: AAP

The federal government is sticking by its jobless rate forecasts, despite a slightly more pessimistic outlook from the OECD.

Finance Minister Penny Wong is standing by the federal government's jobless forecasts in the budget, even though an international institution is more pessimistic about the prospects for the labour market.

In its latest Economic Outlook, the Organisation for Economic Cooperation and Development (OECD) forecasts an Australian jobless rate of 5.4 per cent in 2012 and 5.7 per cent in 2013.

That would be higher than the current unemployment rate of 4.9 per cent.

The OECD report released on Tuesday says structural changes underway in the economy are generating "substantial uncertainties" which could weigh on employment, confidence and growth.

In the 2012/13 budget the federal Labor government forecast an unemployment rate of 5.5 per cent by mid-June 2012 and the same for the next year.

Senator Wong said unemployment was "very low" at present and both the OECD and the government were predicting economic growth above three per cent in 2012 and 2013.

"We said in the budget we still anticipate an unemployment rate that is low by comparison with other economies, and we still anticipate continued trend growth, or growth at around or above trend," she told ABC radio on Wednesday.

However, Westpac chief economist Bill Evans has questioned how quickly the economy will return to trend growth of around 3.25 per cent, given the data released on Wednesday.

The Westpac-Melbourne Institute leading index grew at an annualised rate of 2.2 per cent in March, up from 1.9 per cent in February and the most recent trough of 0.8 per cent last November.

However, the index, which indicates the likely pace of economic activity three to nine months in the future, remains below a long term trend of 2.9 per cent.

It was the seventh month in a row that index growth rate had been below trend.

"The level in March does not encourage too much optimism that growth is likely to exceed trend any time soon," Mr Evans said in a statement.

Meanwhile, new government data also released on Wednesday showed a plunge in demand for workers, according to a count of job advertisements on the internet.

The Department of Education, Employment and Workplace Relations' internet vacancy index tumbled by a seasonally adjusted seven per cent in April, to be 14.7 per cent lower than a year earlier.

Vacancies decreased in all eight occupational groups monitored by the department, and in every state and territory.

National Australia Bank senior economist David de Garis said the data pointed to the risk of annual employment growth turning negative in coming months.

"This index is not the be all and end all of labour demand indicators, but ... it has some predictive power with its relationship to the employment cycle," he said.

The next labour force report will be released by the Australian Bureau of Statistics on June 7, two days after the Reserve Bank of Australia (RBA) board next meets.

Mr Evans expects the central bank will cut the cash rate by a further 50 basis points over the next three months, on top of the three cuts in November and December last year and this month.

"We saw in December last year that the Reserve Bank was prepared to cut rates, almost entirely due to concerns around Europe," he said.

"Relative to December, the risks around Europe are now decidedly more severe."

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