Waning labour market will mean more rate cuts, says major bank

by Julia Corderoy10 Nov 2015
The “uncomfortable” labour market outlook will force the Reserve Bank to cut rates in mid-2016, the chief economist of ANZ has said.

According to the latest ANZ Job Advertisement index, job advertising continued to improve in October, with the number of advertisements rising 0.4%. However, whilst ANZ chief economist Warren Hogan said this is good news, this strength in the labour market is likely to wane over 2016 – ultimately forcing the RBA to cut the cash rate below 2%. 

“The parts of the economy least affected by the ongoing sharp decline in resources investment and commodity price weakness have strengthened, supported by the lower Australian dollar, low interest rates and strong property market activity. In particular, many services industries are experiencing relatively strong demand, and these industries are typically quite labour intensive,” Hogan said.

“We expect overall economic activity to remain reasonably solid over the next 12-18 months. In the near-term, labour market conditions should remain quite good, with some chance the unemployment rate could decline a little. 

“But the strength of support to labour intensive sectors is likely to wane in the first half of 2016, resulting in a softening in jobs growth and no obvious inroads into unemployment. Our view remains that this will ultimately prove too uncomfortable for the RBA and a little more monetary policy support will be provided by mid-2016.”