Steve Keen and Macquarie Group tip cash rate of 2% by year-end

Perhaps signifying the level of uncertainty in the outlook for the 2013 economy and property market, a poll of 23 economists carried out by The Age profers a range in cash rate forecasts at year's end as anywhere between 2% and 3.25%.

Notably, the University of Western Sydney’s professor Steve Keen is one of three economists (the others being Richard Gibbs of Macquarie Group and Stephen Anthony of consulting firm Macroeconomics) forecasting the cash rate to fall to 2% by the end of the year.

While some readers may scoff at Keen’s forecast given his disputed views on house prices, The Age notes that Keen was the only member of the panel to correctly pick the cash rate to fall to 3% by the end of 2012 when the survey was carried out 12 months ago.

“[The RBA] had just cut the cash rate twice from 4.75% to 4.25%. The equivalent of five more cuts was unthinkable, except for Steve Keen,” writes The Age’s economic correspondent Peter Martin.

Martin also notes that Keen was also correct in tipping an inflation rate of 2% by December 2012, with other forecasts of around 2.8% – “not shabby but not keen”.

The average forecast of the 23 economists is for an end-of-year cash rate of 2.7% off the back of modest economic growth (2.7% for Australia, compared with 3.1% across the globe) with a solid 5% pick-up in housing investment following a 6% fall over 2013 – filling some of the gap left by mining.

The weaker economic conditions are expected to push up the unemployment rate to 5.7% by December – seven economists (including Keen and AMP Capital’s Shane Oliver) tip the unemployment rate to rise to 6% or higher in 2013.

The Age survey considered the sentiments of market economists from banks and financial institutions, which make up the bulk of those surveyed (12 economists) along with six university economists, three from economic consultancies and two industry commentators.

Apart from Richard Gibbs from the Macquarie Group, who is tipping the cash rate to slide to 2% over the course of the year, economists from the banks and financial institutions have modest expectations for cash rate cuts in 2013.

Six bank and financial institution economists – including Bill Evans from Westpac, Chris Caton from BT Financial and Saul Eslake from Bank of America – expect the cash rate to fall just 25 basis points over the course of the year to 2.75%.

AMP Capital chief economist Shane Oliver is tipping a cash rate of 2.5% by year-end, with Michael Workman (Commonwealth Bank),  Andrew McManus (ANZ) and Scott Haslam (UBS Australia) expecting the cash rate to be unchanged at 3% by year-end.

HSBC Australia and New Zealand chief economist Paul Bloxham is the most bearish on the cash rate (but arguably most bullish on the economy), expecting the cash rate to end the year higher at 3.25%.

Former economic adviser to the Gillard government Stephen Koukoulas from consultancy Market Economics is tipping the cash rate to fall to 2.5% by year-end, as is BIS Shrapnel chief economist Frank Gelber.

The two industry economists – Julie Toth from Australian Industry Group (AIG) and Brad Crofts from Australian Workers Union – expect further rate cuts in 2013.

Toth is forecasting one more rate cut (2.75%) and Crofts two more (2.5%).