Dr Ellis said even this rate might not be low enough, suggesting unemployment closer to 4 per cent may be needed boost the jobs market.
“As the data have unfolded, it has become apparent that the unemployment rate that Australia can
feasibly sustain is lower than it has been in at least the past 40 years,” she said.
“If Australia truly can have lower unemployment – sustainably – policy should be used to try to get there.”
Her comments followed the latest Westpac-Melbourne Institute measure of consumer sentiment which showed a fall in shopper confidence in June.
Senior Westpac economist Matthew Hassan said confidence was higher before the Reserve Bank announced its interest rate cut on June 4 and the following day when the national accounts showed the economy enduring its weakest growth since the global financial crisis.
“This is a disappointing result given the cut in official interest rates this month and suggests deepening concerns about the economy have outweighed the initial boost from lower rates,” he said.
The survey showed people were increasingly downbeat about the fortunes of the economy over the coming year, but a surge in those who believe it is now a good time to buy a house. However, the confidence of renters took a large hit.
NAB’s economics team on Wednesday downgraded its forecasts for the domestic economy, saying year-on-year growth could slip to as low as 1.3 per cent in the June quarter.
It believes unemployment could lift to 5.3 per cent by the end of the year and to 5.5 per cent by 2021. That forecast takes into account the Reserve Bank cutting interest rates at least twice by early next year.
The bank’s chief economist, Alan Oster, said policy stimulus – from the RBA and the government – was needed to offset a deteriorating domestic construction sector and weakening consumer demand.
“We see growth being constrained by still weak consumption growth over the next few years despite scheduled tax cuts, with key drivers being the impact of slow growth in incomes – due to very moderate wages growth – high debt levels and potentially some impact from the fall in house prices.”
Tourist numbers from the Australian Bureau of Statistics suggest this important sector may also be struggling.
Tourist arrivals fell by another 0.2 per cent in April while there was a 1.1 per cent drop in the number of Australians returning from an overseas trip during the same month.
Tourist visitor numbers have now fallen for the past 6 months with the annual growth level down to its lowest level since November 2011.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.