SYDNEY, Sept 11 (Askume) – Australia’s central bank said on Wednesday the labour market remained tight but was moving towards equilibrium as rising interest rates dampened demand, potentially leading to a mild recession.
Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunt said in a speech in Sydney that labour market conditions remain tighter than full employment forecasts, and growth in working hours, underemployment and participation rates remain somewhat worrying.
However, the labor market is softening, with the unemployment rate rising to 4.2% in July, down from last year’s low of 3.5%. The Reserve Bank of Australia expects this process to continue to slow as population growth exceeds employment growth and companies cut working hours.
“Overall, our current assessment is that the recent easing in labour market conditions amounts to the mildest recession in Australia’s history,” RBA economics chief Hunt said.
“It’s also possible that our assessment could be wrong in the other direction. Things could be more difficult than we expected, or the demand for labor could increase more than we expected.”
The Reserve Bank of Australia has raised interest rates by 425 basis points to a 12-year high of 4.35% to control inflation, butThe labor market remains surprisingly resilient as the economy rapidly creates new jobs.
This is why policymakers have repeatedly stated that a rate cut is unlikely this year. However, as other major central banks have eased policies, the market still expects an 84% chance of the Reserve Bank of Australia cutting interest rates in December.
Mr Hunt said it was striking that Australia’s participation rate continued to hit record highs, which was in contrast to the trend in most peer economies.
One reason for this is the long-term trend of increasing women’s participation and the steady rise in the proportion of people holding more than one job.
Job growth is also supported by a surge in immigration, which increases the supply and demand for labor.
Hunter said there were signs that the slowdown in the labour market was also impacting wage growth and that wage growth may have passed its peak and will slow further.
