Difficult business conditions could push the jobless rate above government predictions to 6.
5 per cent this year, a key business group has warned.
As such, Australian Chamber of Commerce and Industry (ACCI) acting chief economist Burchell Wilson believes it is still too early to completely rule out another interest rate cut.
The chamber’s latest survey of investor confidence showed sales and profits remained weak in the first three months of 2014, the later falling back towards a recent record low.
Such trading conditions are undermining the willingness of business to invest and employ.
“This challenges the view that there is going to be an upswing in non-mining investment that will offset the downturn in the resources sector in the year ahead,” he told reporters in Canberra on Monday.
The business conditions index eased to 49 points in the March quarter from 50.6 points in the previous quarter – back below the key 50-mark that separates contraction from expansion.
The survey’s employment index has been sub-50 since June 2010.
“There is a risk that we see (unemployment) moving towards more like 6.5 per cent by the end of the year,” Mr Burchell said.
This would be the highest in nearly 12 years and above the 6.25 per cent forecast by Treasury.
Labour force figures for March are released on Thursday.
Some economists expect an increase from the six per cent rate recorded in January and February.
However, ANZ chief economist Ivan Colhoun is somewhat more optimistic after his bank’s own data showed job advertisements rose by another 1.4 per cent in March, on top of a 4.7 per cent jump the previous month.
“This suggests the peak in the unemployment rate may be close, although the rate of improvement in job advertising does not suggest a rapid fall in the unemployment rate,” Mr Colhoun said.
Separately, the Australian Industry Group-Housing Industry Association performance of construction index posted a third consecutive monthly increase, rising two points in March.
However, at an index of 46.2 points, it also remains below the critical 50-point mark.
“The rebalancing of the construction sector as mining-related activity slows still has a considerable way to go,” Ai Group director Peter Burn said.
Respondents to ACCI’s survey fear interest rates will rise in the next 12 months and now see this, along with lending charges and raising a loan, among the top 10 of perceived constraints in doing business.
Mr Burchell believes the Reserve Bank may yet have to step in a cut the cash rate if the economy does not pan out as it hopes.
“Growth remains below trend, the unemployment rate is rising, wages growth is moderating, so this isn’t really an environment in which we would necessarily expect to see expectations of a rate hike on the horizon,” he said.