The jobs market continues to grow at a blockbuster pace and keeps the Reserve Bank on course to resume raising interest rates once it is satisfied Europe’s troubles have subsided.
New labour force data released on Thursday – showing another 45,900 people had found work last month – coincided with a warning from the International Monetary Fund (IMF) that downside risks to world economic growth have intensified.
In its World Economic Outlook Update released in Hong Kong on Thursday, the IMF has upgraded its world growth forecast for 2010 because of “stronger activity during the first half of the year”.
“(But) downside risks have risen sharply amid renewed financial turbulence,” it said.
The 45,900 seasonally adjusted jump in Australian employment in June was three times larger than predicted by economists, and included a further 18,400 people finding full-time work.
The jobless rate was 5.1 per cent in June, unchanged from May after revisions, and having been originally reported as 5.2 per cent.
The rate is the lowest level since January 2009, Australian Bureau of Statistics data show.
“Australia’s strong labour force figures stand in stark contrast to the stubbornly high unemployment rates still being experienced in many other advanced economies, where the aftershocks from the crisis are continuing to reverberate,” Employment Minister Simon Crean said in a statement.
The strength of the report saw financial markets price out any chance of an interest rate cut this year, a move that had been toyed with given the uncertainty generated by Europe’s debt problems.
RBS Australia senior economist Felicity Emmett said the Reserve Bank may “sit on its hands” if global financial markets continue to sharply deteriorate, but she thought a rate cut was unlikely unless the world economy slipped back into recession.
“The ongoing strength in the labour market confirms our view that the RBA still has a tightening bias, given that falling unemployment is likely to put pressure on wages with the potential to add to inflationary pressures next year,” Ms Emmett said.
The IMF has maintained its previous growth forecasts for Australia due to “still-robust commodity prices boosting private domestic demand”.
It predicts growth of 3.0 per cent in 2010, accelerating to 3.5 per cent in 2011, as it did in April.
It has revised up its growth forecast for world growth to 4.6 per cent in 2010 from 4.2 per cent previously, while leaving its 2011 forecast at 4.3 per cent.
“The new forecasts hinge on implementation of polices to rebuild confidence and stability, particularly in the euro area,” it said.
Treasurer Wayne Swan said the IMF report showed Australia remains a “world leader” in the global recovery.
“Together with today’s strong employment figures, the IMF’s report shows the Australian economy is still well ahead of the curve,” he said.
Mr Swan said the Australian economy was well placed to benefit from its proximity and links to the world’s fastest growing region – Asia.
The IMF said Asia had only limited direct financial linkages to the most vulnerable euro area economies.
“But a stall in the European recovery that spilled over to global growth would affect Asia through both trade and financial channels.”
In IMF’s accompanying update of it Global Financial Stability Report it said while the most acute market strains seen in late April and early May had “receded somewhat”, “market confidence remained fragile”.
Source: COLIN BRINSDEN, ECONOMICS CORRESPONDENT July 8, 2010 – AAP