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Australia is on the brink of an unemployment challenge, with up to 100,000 jobs set to be slashed in the months after Christmas. And interest rates will drop again next year bringing the cash rate to 3.5%.

These are the thoughts of Westpac chief economist Bill Evans, one of the few economists who correctly predicted a rate cut in November.

“We would expect the unemployment rate to edge up to 5.75 over the next six months,” Mr Evans warned.

“But on the flipside, the Reserve Bank would have to cut the cash rate by at least half a per cent to counter (the job losses).”

The comments come as research firm CoreData suggested the number of unemployed people in Australia will jump by nearly 106,000 next year, assuming the labour force grows at its current rate and the unemployment rate rose to 5.75 per cent, as predicted.

CoreData boss Andrew Inwood was reported in news.com saying the problem would be felt nationwide.

“One in five Australians now think they are going to lose their jobs in the next 12 months,” Mr Inwood said.

Watch the latest market update video from Westpac chief economist Bill Evans.