The main lesson from The Conversation’s poll of 22 economists’ forecasts?
Scott Morrison’s plan to deliver the growth Australia needs over the next five years has negligible credibility.
Only one of the 22 economists thought the Morrison government could do it – and that’s being generous, thanks to forecasting one year of particularly strong growth.
Another thought it possible over four years.
The Prime Minister himself set the target two weeks ago: “… we have a plan to lift growth, not just for the next few months, just not for now. But the next five years.
“We need to lift our economic growth rate by more than 1 percentage point above trend to beat the expected pre-COVID-19 GDP by 2025, to catch back up to where we were before COVID hit.”
That means growth of nearly 4 per cent with “trend” considered to be 2.75 per cent.
Taking the average of the 22 widely varying predictions/guesses in an attempt to find some “wisdom of crowds”, the panel forecast annual growth averaging 2.4 per cent over the next four years – not even “trend” growth.
And that average GDP forecast was on a declining path over the period – growth was down to 1.7 per cent in 2024.
In fairness, the average was skewed by perma bear Steve Keen being (what else?) particularly pessimistic, forecasting GDP will dive by 10 per cent next year and again in 2024.
Omitting this extreme outlier, the other economists had an average growth forecast of 2.7 per cent over the next four years and 2.3 per cent in 2024 – still well short of what Mr Morrison says Australia needs.
(Also omitting the most optimistic economist, Victoria University’s Janine Dixon, results in a four-year average growth forecast of 2.5 per cent.)
The bottom line is that a wide range of economists can’t see the Morrison government delivering anywhere near the growth Australia needs to restore living standards and get unemployment down close to 5 per cent again.
The average unemployment forecast for December 2021 was still 7.2 per cent.
For perspective, GDP growth hasn’t been 4 per cent since 2012.
It hasn’t nudged 3.5 per cent since the Coalition was elected in 2013. It had averaged 2 per cent in the 18 months before COVID struck.
All indications from the government are that growth support will be piecemeal after the ‘September cliff’ when present emergency assistance measures are due to expire.
There are expectations that there will be some increase in the JobSeeker base rate when the COVID supplement finishes in September and some form of JobKeeper might or might not be kept running for the worst-hit industries.
But there is no sign of the government recognising the scale and type of assistance required to promote employment, to significantly lower the unemployment rate and stop the erosion of ordinary Australians’ living standards.
With high unemployment, never mind underemployment, there is no prospect of real take-home wage rises.
Combined with sharply lower population growth, that means weak consumption, thus weak non-mining business conditions, lower profits, more business failures and a vicious cycle of falling capital investment and weak productivity growth.
Many of the economists in the latest Conversation poll were in a group unanimously calling for more fiscal stimulus by the federal government in November, before the worst of the bushfires and when Corona was just a brand of beer.
The Grattan Institute on Sunday night released a guide to the sort of government action required after September to avoid a severe economic crunch and get unemployment down to 5 per cent in two years.
The necessary stimulus would cost further scores of billions of dollars – perhaps the $60 billion “saved” by JobKeeper not being as expensive as first expected.
The cost of not doing it – of abiding by neoliberal dogma – is a much slower recovery, lower living standards and hundreds of thousands of unnecessarily unemployed Australians, with all the human tragedy that that entails.
By the looks of the detail in The Conversation’s panel, few economists believe the government is prepared to go hard or early enough to adequately soften the blow.
Of course, forecasting remains a mug’s game, as observed with the previous Conversation economists’ panel tour of the crystal balls.
The value is not in who guesses what number, but the insight it can provide into the economists’ view of the way forward.
There are oddities along the way.
Of the predictions made at the end of last year, the economist “nearest the pin” was Steve Keen, most famous for (falsely) forecasting housing crashes.
Not for the first time, an economist’s forecast was right for the wrong reasons.
Professor Keen had not foreseen a global pandemic causing a recession.
But the biggest oddity is that Professor Keen now is forecasting Sydney home prices to rise by 10 per cent and Melbourne prices by 8 per cent this year.
It seems the professor has stopped fighting the impact of Reserve Bank interest rate policy.
It’s almost enough to make me start worrying about housing prices.
At the other extreme on the panel, the ANU’s Warwick McKibbin is forecasting Sydney prices to fall by 10 per cent and Melbourne by 11 per cent.
The panel’s average forecast is for Sydney to finish the year effectively flat (-0.4 per cent) and Melbourne down 1.3 per cent.