SCOPE SURVEY 2016

BusinessDay Economic Survey: Stephen Anthony shines in a year of gloom

Asked what would happen to the price of iron ore this time last year, our panel said "nothing much". It would remain roughly steady around US$72 a tonne.

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BusinessDay survey points to major concern over China

The results of the annual BusinessDay financial survey paints a gloomy outlook with startling responses around China's reporting of growth rates.

Instead it collapsed, plummeting to US$41.

In fact, 2015 was the year our panel got spectacularly and unusually wrong.

Industry Super Australia chief economist Stephen Anthony was one of few who tipped interest rate cuts.
Industry Super Australia chief economist Stephen Anthony was one of few who tipped interest rate cuts. Photo: James Boddington

Was the Reserve Bank going to cut interest rates? Not at all, said most of our 25-person panel. Instead, starting just days after the forecasts were published, the Reserve Bank cut its cash rate twice in a matter of months. By May it was 2 per cent. Only one of the panelists predicted it. He was Stephen Anthony, now with Industry Super.

Dr Anthony also came the closest to picking the fresh collapse in the price of iron ore. He wasn't very close, he predicted an iron ore price of US$55 rather than US$41. But he was closer than any of the rest. All the others went for an iron ore price of US$60 or even more. Some tipped a rise to US$80.

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Until mid-last year the director of forecasting at his Canberra consultancy Macroeconomics, Anthony is a former treasury economic modeller who feeds scenarios to computer models that give him consistent economic and budget forecasts.

The scenario he chose was the one outlined in Ross Garnaut's book Dog Days: turmoil in China and much weaker demand for Australia's big exports.

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"If you forecast the right story, if you back the right horse, you'll do well pretty much across the board," he says. "It's when you have the wrong sense of where we are at as a macroeconomy. That's when you a have problem."

His sense is that much weaker demand for Australia's exports will mean weaker incomes, weaker budget revenue and much weaker mining investment. He doesn't think it's over, and he doesn't rule out a recession.

"Mining investment was 5 per cent of GDP. It's going to fall to around 1 per cent. That means the economy is transitioning to something else, but we are not yet sure what it is," he says.

One of Anthony's forecasts was too gloomy. He expected an unemployment rate of 7 per cent. Instead it fell to 5.8 per cent. Anthony thinks employment is switching away from high wage jobs to lower wage jobs, something he didn't expect.

If you forecast the right story, if you back the right horse, you'll do well pretty much across the board.

Stephen Anthony

The runner-up for the title of BusinessDay forecaster of the year is Tom Skladzien, of the Australian Manufacturing Workers Union. He and Julie Toth, of the Australian Industry Group, were the only ones who came close to predicting the extraordinary low to which nominal GDP growth fell: a shocking 2.2 per cent. Most picked rates of 4 per cent or even more, as if nothing much had changed.

Skladzien also got the slide in the terms of trade exactly right, picking 10 per cent. Most expected something milder. Some thought the terms of trade would climb.

And most were undone by the United States, expecting through-the-year US growth of around 3 per cent. Instead, the US grew by closer to 2 per cent (a figure picked by only Jakob Madsen, of Monash University).

As a result the entire world economy grew by less than expected and long-term bond rates stayed far lower than expected. Only two of our panel thought the 10-year bond rate would remain below 3 per cent. They were Stephen Anthony and ANZ chief economist Warren Hogan.

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