Looking for a job: HSBC reckons Aussie unemployment rate will stay low in 2025

Job hunters look set for another good year ahead with a major bank slashing unemployment forecasts.

HSBC predicts the national jobless rate will peak at 4.3 per cent mid-year, much less than the 4.9 per cent previously expected.

Employment has defied Australia’s weak economy, with 335,000 jobs created in the 12 months to November and the unemployment rate at just 3.9 per cent. Data on Wednesday showed job vacancies have lifted after more than two years on a downward trend.

The bank expects jobs growth will continue as government-driven demand for workers rages ahead of a Federal Election due by May.

“When the Reserve Bank has spoken of the ‘narrow pathway’ to a soft landing this is surely close to what they had hoped for,” HSBC chief economist Paul Bloxham said.

“It was never going to be costless to bring inflation back to target, after it surged to multi-decade highs, but to bring it down with a jobs market that has stayed tight is an achievement.”

Moody’s Analytics and Creditorwatch also view the labour market as tight.

But while strong jobs growth will be good news for workers looking to switch roles, Mr Bloxham reckons the RBA will have less room to cut interest rates. The economy was running close to full capacity, risking inflation pressure.

The bank still thinks the RBA will wait until the second quarter to give borrowers relief on interest rates, with another dose to follow before the year is out.

That follows a flurry of speculation on Wednesday that the RBA would cut interest rates in February after core inflation fell.

“There is still some risk that the RBA can’t deliver even this much loosening, given the economy is still operating so close to full capacity,” Mr Bloxham said.

It comes one day after Australia’s latest inflation readout sparked debate over whether the RBA would have confidence to cut interest rates at its next meeting, in February.

Markets have priced in a 78 per cent chance of February relief but economists have warned the central bank may wait a little longer to be prudent.

Core inflation fell to 3.2 per cent in November, tied with September as the lowest rate in nearly three years.

Rising prices were driven by a stimulus-fuelled surge in demand coming out of the pandemic and the supply side of the economy — the ability to make goods and deliver services — has been slow to catch up.

Supply was weak, Mr Bloxham said.

But he was optimistic productivity could rebound, adding that the growing pool of public sector workers partly explained the lag.

Mr Bloxham also knocked back the claim that Federal and State Government spending was keeping the economy afloat, warning the political binge was draining the private sector — businesses and households.

“If public sector spending and hiring had not ramped up, interest rates would likely have come down sooner, and private sector demand could have picked up earlier,” he said.

“An expanding public sector has crowded out a private sector expansion in a fully employed economy, as we anticipated would happen.”