Treasury is predicting that thousands more people will lose their jobs next year than previously thought, and economists warn that much of the burden will fall on Australia's youth.

Treasurer Joe Hockey revealed in his budget update on Monday that Treasury thinks the unemployment rate will now increase from 6.3 per cent to 6.5 per cent next year.

Treasurer Joe Hockey has warned of further job losses next year. Credit:Alex Ellinghausen

It means Australia's unemployment rate is expected to officially jump to a 12-year high, where it is then tipped to stay for two years before gradually improving.

Treasurer Hockey said that despite the average number of jobs created per month this year being "more than double" that of 2013, employment growth had not been strong enough to keep up with growth in the labour force.