The unemployment rate is set to soar beyond eight per cent by the end of next year, says a leading economic forecaster.
But, according to Access Economics, the recession will be less severe in Australia compared to other countries.
Access expects close to one million Australians will be unemployed by late 2010, with the jobless rate forecast to hit 8.5 per cent, significantly higher than its current level of 5.7 per cent.
It is a more dire outlook than three months ago when Access forecast the unemployment rate would rise to 7.5 per by mid-2010.
“Sadly, we have now revised that up to around 8.5 per cent by late 2010 (election time …), with close to a million unemployed Australians,” Access says in its latest Business Outlook report, released on Tuesday.
The jobless rate was last at 8.5 per cent in early 1997.
Saving to outstrip spending
Access said families and businesses were starting to save rather than spend, with the pull-back in the pace of demand growth accompanied by a sharp rise in unemployment.
“When Australians stop spending, unemployment starts rising.
“The bigger the downturn, the bigger are the risks for Australian unemployment.”
However, Access said, there were also a number of key reasons why the recession in Australia should be less severe than in other parts of the world.
Glimmer of hope
“There are key reasons to be optimistic, including the … good health of our banks, the big stomp on the accelerator from Australian policymakers (large and fast stimulus packages and big cuts to interest rates) … and better growth in our backyard (notably in China) than anywhere else in the world.
“On balance, Access Economics does forecast a \’small\’ recession relative to our peers, but it is still going to hurt bad.”
Employment Minister Julia Gillard said the government had been upfront about the effects of the global recession on employment.
“Nobody likes to see even one job lost. But these are difficult days and, unfortunately, the global recession will mean there will be further jobs lost,” Ms Gillard said in a statement.
But opposition employment spokesman Michael Keenan said the government needed to be more upfront with its economic predictions, which were now outdated.
The International Monetary Fund (IMF) has forecast Australia\’s unemployment rate will rise to 7.8 per cent next year, higher than the federal government\’s most recent forecast of seven per cent.
“They should update it as information is available but that\’s not the tack they\’re taking,” Mr Keenan told AAP.
“There\’s no question unemployment will rise beyond their official figures. I don\’t think it\’s helpful for me to nominate a figure.”
The federal government\’s economic forecasts will be updated when the budget is delivered on May 12.
Interest rate \’could hit 2 per cent\’
Mr Keenan said government stimulus programs would be better spent on infrastructure and tax cuts to create jobs.
“It would have been better spent on infrastructure projects than cash handouts – you have got to provide incentives for business to create jobs,” he said.
Access Economics also said interest rates could fall to a record low of two per cent, down from the current 49-year low of three per cent.