Unemployment is expected to reach a near 13-year high in the next six months as sliding commodity prices hammer away at Australia’s economic outlook, the federal government’s budget update shows.
The jobless rate is now expected to peak at 6.5 per cent in 2014/15, its highest level since June 2002, according to the government’s mid-year economic and fiscal outlook (MYEFO) on Monday.
It’s expected to remain elevated through 2015/16 before gradually declining in the following two financial years.
The document says changes to the economic outlook since the May budget have been driven by the sharper-than-expected slide in the terms of trade, thanks to falling iron ore and coal prices, as well as weaker wages growth.
Iron ore prices were more than 30 per cent lower than they were in May, due to increased production by mining companies and a slowing Chinese property market.
Real economic growth is still expected to be well below trend at 2.5 per cent this financial year before moving to near-trend growth of three per cent in the following year and above-trend growth thereafter, as forecast in the May budget.
But forecasts for nominal GDP growth have deteriorated sharply, at 1.5 per cent in 2014/15, compared with three per cent in the May budget.
“This would be the weakest nominal GDP growth in a financial year in over 50 years,” the budget review said.
Wages growth is also expected to slow, with forecasts of 2.5 per cent for 2014/15, compared with expectations of three per cent growth in the budget six months ago.
Treasurer Joe Hockey said the economy had been hit by unforeseen events in the past six months.
“We are now witnessing the largest fall in the terms of trade since records were first kept in 1959,” he told reporters in Canberra.
“This has been faster and deeper than anyone expected.”
The May budget had forecast unemployment peaking at 6.25 per cent in 2014/15, but official figures last week showed the jobless rate had already surpassed that number, reaching a 12-year high of 6.3 per cent in November.
Monday’s MYEFO said the average number of jobs created per month in 2014 had been more than double that of 2013.
But below-trend economic growth meant employment growth had not been strong enough to keep up with growth in the labour force, it said.