They have my deepest sympathies, The Conversation’s 24 economic forecasting victims – sorry, I mean “volunteers”.
Forecasting is hard, particularly forecasting the future, as an old line goes.
It’s much safer to forecast retrospectively, things like “I forecast petrol prices will rise” after the oil price has risen.
Or “I forecast low wages growth” after unemployment has risen.
But The Conversation’s business and economy editor, Peter Martin, somehow ties down 24 economists and tortures their best guesses out of them, forcing them to put their names to predicting the future.
It’s particularly cruel because, being intelligent people, the forecasters know they will probably be proven wrong.
Think about it. On any given forecast, you have at the most over-simplified best only one chance in three of being right – you’re either on the money, above it or below it.
And it’s easier to be either of the latter two than the first.
The odds are horrible. Forecasting is a mug’s game.
Fortunately, it’s not the individual forecasts that matter.
The idea is to tap into a little “wisdom of crowds” that should result in a greater chance of accuracy.
Even then, the important thing for me isn’t the actual average forecast, but what that forecast should make us think about, what policies we should look for.
Forecasts should be used as a framework of possibilities to prepare for.
And the lesson there remains one familiar to readers of this space: the Australian economy is caught in “the Morrison stagnation”, as Crikey has christened it.
There’s economic growth, but it’s sub-standard – thanks primarily to weak consumption, which in turn stems from stagnant, real after-tax wages growth.
It means living standards don’t improve for most Australians.
The panel’s average forecast for the wage price index this year is growth of 2.2 per cent – the same as the most recent Australian Bureau of Statistics score for the September year.
As I’ve written here a number of times, a pre-tax wage rise of 2.2 per cent means a take-home wage rise of just 1.8 per cent – something that still seems not to be commonly understood, even by economists.
The panel’s average consumer price index forecast is a rise of 1.9 per cent. On that basis, people relying on average wage rises will go backwards in 2020. Again.
Consumers’ lived reality, not government or independent economists’ forecasts, explains why the much-ballyhooed tax and interest rate cuts have been largely saved, not spent.
Also as previously reported here, consumers’ wages growth expectations, as surveyed by the Melbourne Institute, are below that of the economists and government.
Such expectations are in danger of becoming self-fulfilling – if you think you’ll only get a 2 per cent wage rise from the boss, you accept a 2 per cent wage rise from the boss.
The most important paper I’ve yet seen on the vicious wages/consumption cycle we’re caught in was that by Reserve Bank deputy governor Guy Debelle in November.
The key big numbers in the panel’s forecasts follow from Dr Debelle’s speech – wages stagnation or near-stagnation.
The federal government’s conservative economic orthodoxy means there’s no policy attempt to break the cycle.
The government has accepted an ongoing unemployment rate starting with 5, which means no wages pressure to speak of, so soft consumption.
To the extent that if there has been any active wages policy by the government, it’s been one of suppression – cutting penalty rates, maintaining a two per cent public service wages growth cap, having HECS debt-collecting kick in on lower incomes, and suggestions of further constrictive industrial relations policy to come.
That’s the way we’re starting 2020.
As the panel’s forecasts conclude, it’s more of the same at the core.
It should be a policy wake-up call for the government, but there’s no sign of anyone in Canberra hearing the alarm.