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Worries continue to bubble for Australian economy, unemployment forecasted to hit 5.7 pct in 2013

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Category: The Australian Economy

Published on Wednesday, 23 May 2012 10:43

Written by Rob Samson

The Australian economy is beginning to look increasingly vulnerable.

The Organisation for Economic Cooperation and Development has forecasted that unemployment will rise to the highest level since 2009 as industries, other than mining struggle to deal with the implications of an elevated Australian dollar.

It was said that unemployment will climb to 5.7% in 2013.
 


Over the past six months the Central Bank has cut benchmark interest rates by 1 percentage point to 3.75% in anticipation of a slowdown, we could see yet more moves on the interest rate.

Such a move would have the effect of eroding the comparative advantage of Australian interest rates, thus compromising the flow of overseas capital into the country.

The obvious upside advantage here, for the Australian economy, is a declining Australian dollar.

Meanwhile, in the UK, the IMF yesterday suggested that further stimulus in the economy was required along with a cut in interest rates.

Further QE would provide a boost to markets but it is imperative that long term growth be driven by increasing domestic consumption.

Expanding the fiscal deficit is not a long term solution.