Chidu Narayanan, economist at Standard Chartered, suggests that in the next few months, declining housing construction activity will weigh on Australia’s job creation and drive up the unemployment rate.
Key Quotes
“We expect the unemployment rate to rise to above 5.5% in the next few months on construction job losses as ongoing residential projects get completed. We believe this likely spike in the unemployment rate, rising external headwinds and a dovish Fed will prompt two more rate cuts from the Reserve Bank of Australia (RBA) in Q4-2019.”
“Building approvals have been declining since late 2017 on falling house prices and weakening sentiment – this decline has started to weigh on construction activity. Construction activity fell by 7.4% y/y in Q2, the worst performance since 2011. We expect it to decline further, especially once current projects are completed, by 15-20% y/y over the next few quarters.”
“The decline in construction activity will likely lead to significant job losses in the sector. Construction jobs made up over 25% of 414,000 jobs created in 2017. We expect a majority of these jobs to be lost in the next few months as ongoing projects are completed and with few new projects in the pipeline. This should drive up the unemployment rate, which we forecast will increase beyond 5.5% in the medium term, despite a likely drop in participation due to declining sentiment.”
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