ANZ chief economist Warren Hogan has backed the Turnbull government to continue with its budget repair task, even though the bank expects the Reserve Bank to cut the cash rate again next year.
ANZ says continued softness of the economy at the start of next year and the risk of an even higher unemployment rate could force the central bank to cut the cash rate, which has been at a record low of two per cent since May.
Mr Hogan forecasts 25 basis point cuts in both February and May, which would take the cash rate to 1.5 per cent.
"At this stage of the game, it is more appropriate to use monetary policy to support the economy and keep fiscal policy focused on that consolidation program," he told Sky News on Thursday.
Treasurer Scott Morrison has hinted at further budget cuts, saying Australia still has a spending problem, rather than a revenue problem.
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Mr Hogan believes it is a bit of both.
He said the economy was not in "mortal danger" but expects support from the housing market to peak this year and the mining sector to continue to weaken.
"The non-mining business side is not strong enough to keep the economy ticking over," he said, adding that it could result in unemployment rising in the second half of 2016.
The jobless rate remains close to a 13-year high of 6.2 per cent.
