Companies set to axe jobs: survey

As the Reserve Bank cut its base rate of interest to 5.25% - a 0.75-percentage-point drop that outstripped investors' expectations - economists warned that further cuts would be needed to help Australia through the global financial crisis.

"A less restrictive monetary policy, combined with the first tranche of the Government's stimulus package, is critical to avoid a major domestic economic slowdown," said Greg Evans, director of industry policy and economics at the Australian Chamber of Commerce and Industry, in a statement.

Speaking later to BusinessDay, Mr Evans said policy needed to keep businesses spending on staff and equipment through the downturn.

"Anything that can be done to encourage business investment will help," he said. "There is no doubt that the economy is slowing and that that will have an employment impact."

For the first time since 2003, respondents to a quarterly survey of business expectations by the ACCI and Commonwealth Bank thought the jobs market would shrink over the next 12 months. It was the fourth straight quarter of declining employment expectations, the longest sustained drop since 2000.

But each of the previous declines in employment expectations predicted jobs growth would continue - just at a slower rate.

The most recent survey showed businesses expected to cut jobs - an important shift that ABN Amro chief economist Kieran Davies said was already showing through lower job advertisements.

"We are on the verge," Mr Davies said.

Expectations of economic performance in the three months to September 30 fell to the lowest level since the CBA/ACCI survey began in 1994, shattering the floor set just three months earlier.

The index level of 29.9 was nearly 20 points below the five-year average of 48.3. A reading above 50 means expectations are positive, while below 50 shows a negative outlook.

Profit expectations and the outlook for general business conditions were the lowest on record and expected to worsen further in the months to come.

But while fewer jobs were likely to be on offer, wages and other business costs were expected to continue to grow. UBS economist Scott Haslem said wages tended to lag other indicators, but the slowing jobs market would eventually cut back on wage growth to stifle inflation.

"It is inevitable that we are going to see the unemployment rate rise, and in those situations you seem to see moderation in the pace of wage growth," Mr Haslem said. "That works in the overall picture that inflation, although it is still printing high today, will not be a problem in the next six to 12 months."

RBA governor Glenn Stevens said in statements accompanying the announcement of the rates decision that, while inflation had reached 5% over the year to the end of September, it was "reasonable to expect that inflation in Australia will soon start to fall".