Prof Steve Keen again says Australia in for recession in 2017; but survey expects GDP to grow 2.4 percent

Prof Steve Keen again says Australia in for recession in 2017; but survey expects GDP to grow 2.4 percent
Prof Steve Keen again says Australia in for recession in 2017; but survey expects GDP to grow 2.4 percent

Australia faces the prospect of a recession in 2017, going by a forecast by economist and author Steve Keen, the lone voice against the average consensus for growth in the 2017 BusinessDay Scope survey of economists.

Professor Keen predicted GDP for the year to December at minus one percent, implying recession, while also predicting a fall in wages of 0.5 percent. It repeated his earlier forecasts.

Meanwhile, the Reserve Bank faces no pressure to adjust interest rates at its first meeting for the year on Tuesday and is likely to keep rates unchanged throughout the year — a rarity — says the survey published by The Sydney Morning Herald.

Approaching its 40th year, the BusinessDay survey is made up of forecasts from 27 economists in the diverse fields of financial markets, academia, consultancy and industry.

Over the years, its average predictions have been more accurate than those of any of its individual members.

The rare event of interest rates unchanged throughout the year was predicted accurately earlier too by the same survey, in 2014 and 2004.

A boost in commodity prices and trade surplus will help the Australian economy grow 2.4 percent in 2017, says the average of the forecasts, an increase from the most recent result of 1.8 per cent, but well below the the implied forecast of 3 percent in the treasury's mid-year budget update, the report says.

Keen is not the only pessimist.

Two others are also quite pessimistic about GDP growth too, and they are the two who came closest to getting it right last year. Stephen Anthony of Industry Super and Bill Mitchell of the University of Newcastle each predicted only 1.6 percent.

“Worldwide, the huge expansion in liquidity is pushing up asset prices instead of sparking investment,” Anthony was cited as saying in the report.

"And in Australia mining investment has further to slide.”

"That makes us a one-trick pony. We've got high-density dwelling investment driving the economy; potentially unsustainably as a result of effervescence coming in through China and our interest rate settings. That's really the only driver we've got. It will come off at some point in 2017.

"Other than that, consumption is weak, public investment is weak, public consumption is weak, and while net exports are helping, they are driven by Chinese monetary expansion, which will continue for a while before tailing off after 2017. Our growth rate will stay low, between 1 and 2 percent."

Among the others, two of the panel expect growth to exceed the treasury's 3 percent forecast: HSBC's Paul Bloxham, who expects 3.4 percent, and ANZ's Richard Yetsenga, who predicts 3.3 percent. Five agree with the treasury number.

Most of the panel (although not Anthony and the ACTU's Margaret McKenzie) expect a Trump-driven boost in US economic growth to more than 2 percent.

Three of the panel expect growth of 3 per cent. All expect China's reported growth to be close to the official target of 6.5 to 6.7 percent, in part because of revelations that at least one province has faked data in order to meet the target. Most expect global growth to chug along at around 3.1 percent.

Trade, prices, wages and jobs

Last year's jump in the price of iron ore should run out of steam. After climbing from $US40 a tonne to more than $US80 by December, the panel's central forecast is for a retreat to $US70. But six of the 27 expect further increases, two of them, Mardi Dungey of the University of Tasmania and Neville Norman of the University of Melbourne, to about $US100 a tonne.

The panel's central forecast is for Australia's terms of trade – with the nation running a substantial surplus – to close 2017 little changed, but two of the panel, Sally Auld of JP Morgan and Julie Toth of the Australian Industry Group, expect further jumps of 7 and 10 percent, while Michael Blythe of Commonwealth Bank and Paul Dales of Capital Economics expect sharp falls of 7 and 8 percent.

The panel expects inflation to recover from 2016 low range of 1 to 1.5 percent to 1.9 percent by December, which is just below the bottom of the Reserve Bank's 2 to 3 percent target band. Though two of our forecasters, economist Saul Eslake and Richard Robinson of BIS Shrapnel, expect underlying inflation to climb to anything near the middle of the band, 2.4 percent for Eslake and 2.3 percent for Robinson.

Wages should mercifully increase by more than prices, in part because of the extra money high commodity prices will give to employers, climbing 2.1 percent in 2017 after a record-low 1.9 percent in 2016. The highest wage growth forecast is 2.7 percent, from Victoria University economic modeller Janine Dixon. 

Recession Property market

Community Discussion

Be the first one to comment on this article
What would you like to say about this project?