The Reserve Bank has cut its growth and inflation forecasts for this year and expects the unemployment rate to remain elevated until 2016.
In a crushing blow to job seekers, the central bank has warned that it does not expect a sustained fall in the unemployment rate for another two years.
The Reserve Bank’s warning comes a day after Australia posted its highest jobless rate in 12 years at 6.4 per cent.
In its quarterly statement on monetary policy released on Friday, the RBA has also trimmed its economic growth and inflation forecasts, the latter in response to the federal government’s successful repeal of the carbon tax.
It suggests the RBA will be in no haste to raise the cash rate, which has already been stuck at an all-time low of 2.5 per cent in the past year.
After a positive start to the year, economic growth has slowed to a more moderate pace as exports declined and retail sales and consumer confidence weakened.
It expects growth will be a little below its long-term trend of around 3.25 per cent over 2014/15 before picking up in the following financial year.
“The unemployment rate is likely to remain elevated for a time and is not expected to decline in a sustained way until 2016,” the central bank says.
Opposition Leader Bill Shorten noted unemployment hasn’t been this bad since Prime Minister Tony Abbott was the employment minister in the Howard government.
In a speech to the National Small Business Summit in Melbourne he blasted the government’s “half-baked” plan that forces unemployed people to apply for 40 jobs a month.
He said it has been left to small business to deal with a “tsunami” of applications from jobseekers that will cost firms around $2.1 billion over the three-year program to process.
But Mr Abbott says everything his government does is about creating jobs and building prosperity.
“Our job is to make it easier for (business) to do their job, which in turn is creating jobs,” he told reporters after addressing an Australian Industry Group lunch in Sydney.
However, the RBA said uncertainty surrounding which new budget policy initiatives will be legislated could result in either stronger or weaker growth than forecast.
It has cut its 2014 year-end inflation forecast to two per cent from a previous 2.75 per cent prediction made in May following the abolition of the carbon tax.
The timing of the direct effects of the repeal will depend on the extent to which savings on utility costs are passed on to customers, it says.
The Australian Competition and Consumer Commission put 250 energy companies on notice this week to estimate to their customers how much the removal of the carbon tax will affect prices.