A quick hike in interest rates and an unwinding of fiscal stimulus measures could undermine the partial recovery of the Australian economy, leading business economists have told a Senate committee.

Australian Chamber of Commerce and Industry economist Greg Evans and Australian Industry Group director Peter Burn said current interest rates and stimulus spending should remain in place until at least 2010 to aid further recovery.

Both men predict unemployment will rise regardless of government spending, and that the domestic economy is only partly recovered from the global financial crisis, with retail spending still “subdued”.

“We would expect interest rates to rise but we hope that would not be before 2010. If it came before that we think it could snuff out confidence,” Mr Evans told the hearing.

“If interest rates do increase in the next six months or so I would hope it will be on the strength of greater financial strength.”

Mr Burn added: “I expect further rises in unemployment and a reduction in hours worked, the effect of which will flow through the economy.

“We would argue against the winding back of fiscal measures because it could undermine the recovery which appears to have taken hold.”

Their comments followed those by Reserve Bank of Australia governor Glenn Stevens, who told the Senate Economics References Committee he expects interest rate rises and an unwinding of fiscal stimulus measures as the recovery gains pace.

Asked by senators how bad the global financial crisis could have been for Australia had the federal stimulus measures not been in place, Mr Evans said there would have been a era of global depression.

He also admitted there was significant and justified “community concern” over executive salaries, but said top-level Australian remuneration had not reached the levels seen on Wall Street.

He said legal regulation of executive pay could harm Australia’s global business prospects.

AAP