Commonwealth Bank economists now expect the unemployment rate to hit 5 per cent by the end of the year, upgrading their previous forecasts as the economy continues its COVID rebound.
CBA’s head of Australian economics Gareth Aird on Monday said forward-looking indicators hinted that, with the participation rate back at pre‑COVID‑19 levels, the unemployment rate will drop quickly over 2021.
He said the unemployment rate would now be 5 per cent at end‑2021 – down from 5.5 previously – and 4.7 per cent at the end of 2022, down from a prior 4.8 per cent forecast.
“Measures of labour demand matter for the outlook. And currently they look very healthy indeed,” Mr Aird wrote this morning.
“Job vacancies and hiring intentions suggest that with the participation rate back to its pre‑COVID‑19 levels the unemployment rate could drop very quickly.
“The strength of the forward-looking indicators of labour demand also indicate that the expiry of JobKeeper will not be particularly problematic for the labour market as a whole.”
March unemployment data is due on Thursday. The consensus is for the jobless rate to fall from 5.8 per cent to 5.7 per cent, with 35,000 jobs added for the month.
Mr Aird on Monday said the bank also made a modest upward revision to its GDP profile.
It is now looking for growth of 4.7 per cent in 2021, up from 4.4 per cent, and 3.7 per cent in 2022.
“The recent negative news on Australia’s vaccine rollout is a setback and points to a delay in international services trade resuming,” Mr Aird said.
“But it does not shift the dial for domestic demand in 2021 provided any outbreaks of COVID‑19 are traced and well contained and significant restrictions are not reimposed for an extended period. We acknowledge, however, that the risks of COVID‑related distributions to economic activity have risen.”
Underlying inflation and wages growth are also forecast to rise, but CBA’s expectation for wages growth to be 2.7 per cent at the end of 2022 “does not clear the hurdle for an increase in the cash rate target by the RBA”.