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A Bill market - meet the forecaster who owned 2017

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No-one got 2017 as right as Bill Evans.

The Westpac veteran picked economic growth of 3 per cent, pretty close to the 2.8 per cent we’ve got so far (for the year to September) and much closer than previous forecasters of the year Stephen Anthony and Renee Fry-McKibbin who picked 1.6 and 1.8 per cent.

More importantly and less commonly, Evans picked nominal growth of 5.4 per cent, way in excess of the 3 per cent that prevailed when he made the forecast and the sort of jump not seen since the mining boom. Nominal growth is measured in actual dollars of income, the kind that matter for the budget. A surge in iron ore prices (which Evans also picked) pushed up nominal growth to 5.9 per cent, more than the highest of the forecasts this time last year, but within range of the 5.4 per cent picked by Evans and also Paul Bloxham of HSBC.

To forecast that the Reserve Bank would keep its cash rate steady for an entire year notwithstanding the surge in national income required restraint and a reading of the bank that has made Evans, a former research manager at the bank, one of the best at predicting when it will and won’t move. For what it’s worth, in today’s survey he is predicting the second year in a row without a move in the 1.5 per cent cash rate, something that, if it happens, will be the longest period of steady rates since the bank began publishing its decisions in 1990.

Bloxham, another Reserve Bank alumni, also correctly picked 2017 as a year without rate moves and is expecting that to continue into the second half of this year, although this isn’t reflected in the published survey results that show him tipping an increase to 1.75 per cent. He has since revised away that increase in the wake of the tame inflation figure published after the survey deadline. Bloxham might have been named forecaster of the year along with Evans were it not for his over-optimistic prediction for headline economic growth of 3.4 per cent.

Only seven of our 27 panelists predicted a turndown in housing investment, Evans among them. Most correctly predicted a further slide in mining investment, but few picked the scale of the lift in non-mining investment which in the year to September recovered 9 per cent. The closest were Stephen Koukoulas (up 10 per cent), Richard Yetsenga (up 9 per cent) and Su-Lin Ong (up 8 per cent).


The Australian dollar came in much higher than Evans and the bulk of the panel had expected at 78 US cents and has since climbed to 80 cents. The average forecast, and Evans forecast, was 72 cents. The closest were 77 cents (Jakob Madsen), 76 cents (Besa Deda and Bill Mitchell) and 78 cents (Neville Norman).

The 10 year bond rate came in lower than expected at 2.6 per cent. The panel had picked an average nearer 3 per cent as had Evans. The most accurate forecasts (and bond rates are one of the key things market economists are paid to forecast) were by Saul Eslake, Fry-McKibbin, Koukoulas, Madsen, Mitchell and the National Australia Bank’s Riki Polygenis.

The ASX 200 closed the year up 7 per cent, better than the average forecast of 2.25 per cent, close to the gains of 5 to 6 per cent predicted by Evans, Koukoulas and Norman, and very close to the gain of 6.5 per cent predicted by Julie Toth of the Australian Industry Group.

Evans doesn’t work alone. He has a team of six Australian economists who toss ideas around and play devil’s advocate. Although they can use computer models, they are wary of them.

Senior economist Matthew Hassan says mechanical models go wrong during major shifts. The latest iron ore price boom was one. The model said it would boost consumer spending.

Evans and his team thought that it would at first, but then incorporated detailed insights from their consumer sentiment survey which told them the relationship had broken down. They are not afraid to change their forecasts, and they issue announcements when they do, which often move markets.

But they are also prepared to stick with a view. Hassan says they’ll do it longer than others if they think they are right.

Peter Martin is economics editor of The Age.

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