The Reserve Bank of Australia, in its monetary policy statement this month, said it expected the unemployment rate to rise "a little" before declining gradually as the economy regained momentum. It is forecasting economic growth of more than 3 per cent a year over the next two years.
Forward-looking indicators of labour demand such as job advertisements and business surveys have been mixed, the RBA said, though most are weaker than earlier this year. "We are significantly more bearish on Australia than the RBA," Westpac chief economist Dominick Stephens said.
"Consumers have had a significant blow to confidence. House prices are falling, interest rates are hurting, and that will outweigh any employment effect from the mining boom in the north and west of the country."
By contrast, Westpac is forecasting a sharp drop in New Zealand's unemployment rate next year, from 6.6 per cent currently, driven by a rebound in the labour-intensive construction sector.
"By the end of 2012 New Zealand unemployment is at 5.2 per cent and Australia 5.6 per cent in our forecasts," Stephens said.
That is not out of line with the consensus, which has the New Zealand unemployment rate at 5.2 per cent by March 2103. "On our estimates that's enough to prompt about 11,000 fewer New Zealanders to move across the Tasman next year compared to this year and about 18,000 fewer in 2013," Stephens said.
"That's a major change in net migration summing to about 0.6 per cent of New Zealand's population."
A population gain of that size would boost both consumption and the labour force. "But it also adds to demand for a limited stock of housing and it is this channel that is likely to have the biggest consequences for domestic inflation."
Reserve Bank research four years ago found that a spike in migration on average led to between one and two houses being built for every 10 migrants and that a 1 per cent increase in population due to migration had been associated with a temporary 10 per cent lift in house prices over the subsequent three years.
"We don't believe the impact on house prices will be quite that strong. In particular, we expect rising interest rates to keep house prices in check over the next couple of years," Stephens said.