The latest surge in unemployment tells the story of a faltering economy with weak consumer and business sentiment that interest rate cuts alone cannot reverse, a QUT economist says.
The Australian Bureau of Statistics today (THURSDAY) reported that unemployment had jumped to 6.4 per cent in January, up from 6.1 per cent in December.
Dr David Willis, from QUT Business School, said cutting interest rates further was not enough on its own and could prove counterproductive for the Australian economy.
"Cutting interest rates in isolation of any fiscal stimulus by either State or Federal Government cannot generate employment growth at these low rate levels," he said.
"The Reserve Bank of Australia hopes that consumers and business see low interest rates as a positive, so start spending and generating growth and jobs.
"However it can be argued that the opposite is true - consumers and business actually see the cuts as the RBA at below what was described as 'emergency levels' and trying to cut off a major slowdown in the economy.
"Therefore any dividend gained by cheaper rates or cheaper petrol prices is either saved or used to pay debt down as consumers feel worried about their job prospects.
"Business holds back on investing, assuming the economy is now slowing to a crawl and fearful they will not get a return on their investment. This leads to cost cutting and, ultimately, cutting employment to maintain profit growth."
Dr Willis, who earlier this month warned the RBA's February cut risked sparking a real estate bubble, said "serious" government spending was needed to stimulate the economy.
"What the economy now needs is a serious fiscal spend by government on much needed infrastructure to support the economy," he said.
"The help the RBA can offer through interest rate cuts is now at an end in real terms and there is nothing more they alone can do to generate employment and much needed confidence in the direction of the economy."
Media contact:
Rob Kidd, QUT Media, 07 3138 1841, rj.kidd@qut.edu.au
After hours, Rose Trapnell, 0407 585 901
