Economists believe the job losses seen this week instigated by Westpac and Qantas are likely to flow through to SMEs, pushing unemployment higher and ultimately restricting consumer spending even further.
The warning comes although market turmoil seen over the past two weeks has eased, but experts say consumer sentiment will take a significant hit, pushing the unemployment rate above 5.1% over the next year.
Qantas announced yesterday that over 1,000 jobs would be axed as it restructures its entire international business, while Westpac chief executive Gail Kelly warned investors that job cuts are to be expected as the bank battles a struggling economy.
Housing products manufacturer GWA also announced 170 job cuts, while OneSteel announced 400 cuts, with more to come.
AMP economist Shane Oliver says it is easy to make comparisons to the global financial crisis, when unemployment was expected to rise higher than it actually did. However, he also warns the economy is facing several risks.
“Australian companies, particularly large companies, were working on the assumption that demand would be strong as the mining boom trickled through the wider economy. That hasn’t really happened.”
“Households have been incredibly cautious and businesses are wondering why spending hasn’t come through, as they now have a labour cost that just isn’t justified in the demand.”
Oliver says the likely outcome is that we will continue to see significant layoffs, and that “the last couple of weeks have accelerated that”.
“You hear the news of what’s going on globally, and certainly, this can’t be a good thing for confidence.”
As a result Oliver expects the RBA to cut interest rates, “certainly by the end of the year”.
“We’re just going from one disaster to another. The debt focus in Congress has poisoned the political atmosphere there, and has severely affected consumer and business confidence.”
ANZ head of Australian economics and property research Ivan Colhoun says the economy is currently not producing enough jobs to keep unemployment steady for much longer.
“We’re currently creating about 3,000 extra jobs every month. But will that be enough to keep unemployment from rising? I don’t think so. We’re going to need about 10 or 12,000 jobs a month to keep that level stable.”
“Typically you’ll see big businesses shedding jobs but if you look at the headlines you’re hearing about job losses, that will reinforce weak consumer sentiment. I think this will begin to affect consumer spending and keep people restrained.”
And while Colhoun says the economy is seeing a structural change in some areas, such as the shift from bricks and mortar retailing to online, there are significant pressures.
“The higher dollar is pushing manufacturers to cut jobs, we’re seeing cuts in bookstores as well. This is simply the new world post the global financial crisis.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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