RBA Lowe Upgrades Key Labor Forecast, Says Downturn Not as Severe as Expected

By Sophia Rodrigues

The Reserve Bank of Australia has upgraded its forecast for hours worked, now expecting total hours worked to fall around 10% in the first half of the year compared with its official forecast for a 20% fall.  

Hours worked is the RBA’s most important estimate related to the labor market and thus the economy, and the upgrade is in line with an article published by CB-Intel last week when the labor force survey for May was published by the Australian Bureau of Statistics. The article said the fall in hours worked by June would be around 10%.


The economic downturn in Australia has not been as severe as other countries, and not as severe as we expected, Governor Philip Lowe told a panel at the ANU Crawford Leadership Forum on Global Economy and COVID-19 Monday.

“Three or four months ago I thought hours worked in Australia could fall close to 20%,” Lowe said, adding, the numbers now are close to 10% which suggests it is not as bad as anticipated.

But despite a less severe downturn, Lowe said the economy is likely to be affected from the shadow from the crisis that would last years.

Lowe previously said he continues to believe in the “whatever it takes” mantra. The right thing to do now is to borrow to build a bridge, and to borrow to make investments in the future, he added.

On the Australian dollar, Lowe said he would like a lower exchange rate but at this moment it is hard to argue that the Australian dollar is overvalued.

“At some point it could become a problem, but we’ve not reached that point yet,” he said.

He emphasised that the RBA has not lost its monetary independence and it still has the capacity to choose measures needed to meet the economy’s needs.

Lowe said the RBA’s inflation framework is serving the economy well and this is not a time to look at the framework. But over the next few years it might be worthwhile to look at it, he added.

On a numeric target for full employment like it is for inflation, Lowe said it does not make sense because it is hard to know what defines full employment in terms of unemployment rate.

“We just don’t know what constitutes full employment in terms of unemployment rate,” so it is difficult to commit to a specific number, he said.

--Contact: sophia@centralbankintel.com