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With a significant and sustained change in momentum for the private sector unlikely in the near term, Australia’s overall employment growth is expected to slow to 2.0 percent y/y by the end of 2019 and further in 2020, according to the latest report from ANZ Research.
Around 97 percent of net employment gains over the past year have been in the public sector. Private sector growth has been essentially flat, corresponding with weak business conditions and declining private investment. The strength in public sector employment has been seen across states and territories as well as in key industries.
Unless a sharp rise in public sector workers is seen in the next quarter, annual employment growth could slide quite sharply. Efficiency dividends at both the federal and state levels could also start to undermine public sector jobs, particularly at a time when reduced stamp duty revenue has punched a hole in state budgets and when the federal government is fixated on achieving a budget surplus in 2019-20.
The Reserve Bank of Australia (RBA) also expects employment growth “to slow from its recent fast rate”. Following the latest cash rate cut to a fresh low of 0.75 percent, it stated that “the Board took the decision to lower interest rates further today to support employment and income growth”.
Furthermore, “it is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment” – which the RBA has previously suggested now means an unemployment rate of 4.5 percent.
Unfortunately, it is not expected to be achieved any time soon. Rather than relying on the public sector, the private sector will need to become the key driver of employment growth again. This will be a tough ask against the formidable headwinds of global uncertainty and a fragile domestic household sector, the report added.
"This could see the unemployment rate rise to 5.4 percent if participation stabilises around its current highs, as we expect," ANZ Research further commented in the report.
