News Service from House Harris

Fed: Celebration, what celebration?

CANBERRA, Aug 7 AAP - Hold the champagne - the Rudd government's party poopers are in no mood to celebrate.

US President Barack Obama and a New York economist dubbed Dr Doom may have declared the worst of the global economic crisis to be over, but Labor's economic warriors are telling voters to brace for higher unemployment.

To complicate matters, the Reserve Bank of Australia (RBA) has indicated twice this week interest rates are more likely to go up than down.

It says Australia is likely to avoid recession, and now expects the economy to grow by a half per cent in 2009, rather than contract as it had earlier thought.

Financial markets are now expecting the official cash rate to rise as early as next month from a 49-year low of three per cent.

The union movement and the opposition, meanwhile, think Treasury's unemployment forecasts are a little grim for their liking.

The business of delivering the dark message was left to Treasurer Wayne Swan, who told a foreign investment forum on Tuesday he wasn't planning a party.

"I'm a realist and I certainly won't be popping champagne corks when it is realistic to expect thousands of Australians still stand to lose their jobs to this global downturn," he said.

As news filtered through that Australia's unemployment rate in July held steady at 5.8 per cent, Employment Minister Julia Gillard reiterated warnings about a shaky global economy.

"Even the most optimistic economic forecasters are telling us that they expect the global recession to hit our economy, and they expect it to show through increasing unemployment figures," she said.

She stuck to Treasury's forecast of unemployment hitting a peak of 8.5 per cent by 2011.

But CommSec chief economist Craig James declared that unemployment would not climb above 6.5 per cent.

"Australia clearly has a champagne economy compared with other advanced nations across the globe," he said.

Mr James' colleague, Savanth Sebastian, said Labor was cleverly playing the politics of "under promising and over delivering" on the economy.

"If it comes off a lot better than expected, it may win a few votes," he said.

Treasury's Mid-Year Economic and Fiscal Outlook, due by November, was likely to lower its forecasts for unemployment, Mr Sebastian said.

Ironically, the opposition was more upbeat about this week's steady unemployment figures than the government.

"The opposition welcomes these figures, like we welcome any good news on the economy," the coalition's employment spokesman Michael Keenan said.

The ACTU is also expecting the jobless rate to peak at somewhere below 8.5 per cent.

"We are increasingly hopeful that ... fewer Australians than previously predicted will lose their job," ACTU president Sharan Burrow said.

US academic Nouriel Roubini, or Dr Doom, who predicted the global financial crisis, told a mining conference the worst of the crisis may be over.

"Certainly, we're closer to the bottom than six months ago," Professor Roubini said.

"The worst of the global financial crisis is behind us but I don't believe the recession is yet over at the global level."

The steady jobless rate, based on a big jump in part-time employment, stoked financial market expectations that interest rates may rise soon.

Traders got more excited on Friday after the RBA's quarterly statement on monetary policy said the chance of a rate cut had diminished because of better-than-expected economic data.

It predicted the economy would grow by half a per cent in 2009, reversing its previous forecast of a one per cent contraction.

The RBA left interest rates on hold on Tuesday, following its monthly board meeting, but in making the announcement, central bank governor Glenn Stevens said the threat of a deep contraction had "abated" while a strong housing sector would help economic growth firm in 2010.

In the short term, some economic indicators are a bit patchy, with retail sales sliding by 1.4 per cent in June, the biggest slide in four months.

Like the Rudd government, the RBA is concerned about sluggish business investment which means it may delay a rate rise until early 2010, CommSec says.

Financial Services Minister Chris Bowen said while interest rates could not stay low forever, there was a case for delaying a rate rise.

The Australian Chamber of Commerce and Industry (ACCI) also pleaded with the RBA to put off raising rates, with acting chief executive Greg Evans warning that a recovery could be jeopardised.

When the recovery party does start, don't expect Prime Minister Kevin Rudd to be popping the cork on the champagne.