Access Economics was up to its old tricks overnight, forecasting doom and gloom for the federal budget and in the process scoring easy publicity from journalists and commentators, who gave the forecast more credence than it deserved.
The Sydney Morning Herald headlined the report on page one with “Budget an ‘accident waiting to to happen’.”
“The budget will enjoy only one year in surplus before being dragged back into the red by lower commodity prices, the forecaster Access Economics says, undermining a key election priority of the Gillard government.
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While the government is projecting growth in the budget surplus from 2012-13, the consultancy known as ”Treasury in exile” says the nation’s public finances will quickly lurch back into deficit in 2013-14 as the resources bonanza fizzles out.”
The author of those gems, Clancy Yates, must be a seer, along with Access Economics and its director, the publicity-hungry Chris Richardson. If they can be so certain about the 2013-14 budget, who then perhaps they already know the result of Saturday’s AFL grand final replay.
Over at The Australian there didn’t seem to be a report, while the Australian Financial Review stuck a more considered report on page nine by political editor Laura Tingle.
The story depends on the worth of forecasts from Access Economics. That isn’t a stellar track record.
Access has been reliably forecasting the end of the mining boom since at least 2006, when Richardson told the New York Times “the only supercycles to date have otherwise been known as world wars”.
One day, you imagine, they’ll be right.
And take this widely reported forecast on January 19, 2009, in which Access warned “Australia will definitely fall into recession this year” and that the federal budget was “buggered” because “Australia’s prosperity will unwind quickly because of the slowing Chinese economy and the budget will fall into deficit”. That one got a lot of play in the media. In fact, Australia recorded positive (marginal, but positive) economic growth in the March quarter of that year after recording the only quarter of negative growth in the three months to December.
And the budget did fall into deficit. That was the no-brainer. But Australia’s prosperity did not unwind quickly; if anything it has rebounded very, very fast to where unemployment is just 5.1% and more than 300,000 new jobs were created from the start of 2009 to last month.
Then there was this forecast last October about the Queensland economy: ”
“Queensland is no longer the nation’s economic frontrunner and is at greater risk than its interstate counterparts of a double-dip downturn.”
Then again that balanced its prediction in 2007 that NSW was about to hit its straps, just before it became the national economic basket case.
Prediction is a tricky game, of course, but it’s funny how Access last year didn’t see the impact of the rapid rate cuts from the RBA, the stimulus spending having a big impact back in that forecast in January. Nor was there any credence placed on China. In that it wasn’t alone, but the Reserve Bank was certainly more alive to the possibility of a Chinese rebound, than was federal treasury (and its outriders such as Access), which has been almost ignorant at times about China’s economy and its rising impact on Australia.
In July of 2009, after the release of the minutes for that month’s RBA board meeting, I pointed out that the RBA had become more confident about the economy, and so had Access Economics and some of its corporate clients, such as retailer David Jones, which had hunkered down for the mother of all slumps based on Access’ forecasts, but had found nothing of the sort had happened. On July 20, Access said Australia had dodged the recession it had forecast in January. No apologies or, sorry folks for being overly alarmist.
But Chris Richardson couldn’t help himself. There he was telling the ABC’s Alexandra Kirk that while we might have missed the recession, unemployment would go on rising.
“Unemployment still goes up from here and profits fall further from here and business spending falls away; there’s still a lot of pain left but the most dangerous time is over.
ALEXANDRA KIRK: You’re forecasting that unemployment will hit double digits in Europe and the US but peak here at 7.5%. Three months ago you thought it would hit 8.5%; how can people trust economic forecasts when they keep shifting and are often contradictory?
CHRIS RICHARDSON: The do keep shifting but there’s more information all the time and if you look at the three stand-out things that make Australia different at the moment, it is that we, effectively alone amongst the rich nations, are spending more now at the shops than when this crisis hit. And exports, the quantity of stuff, you know the coal and iron ore the tonnes that we’re selling internationally, that’s actually gone up at a time when trade has shrunk at a scarily fast rate around the rest of the world.”
Well, we now know that unemployment was steadying as he spoke and the change accelerated in late 2009 and early this year.
And as this latest forecast, given the Mixmaster by the SMH, I don’t know about 2012 to 2014. It’s too far away, just as I don’t know very much about what will happen for the rest of today, except that I hope I and everyone else makes it to dinner time in one piece.
I do know that the Reserve Bank and treasury have pretty good records on forecasting, all things being equal. Yes, there are errors and misses, but also good judgement calls. But their forecasts are few and far between, not at the whim of corporate clients and a bit of publicity.
But having forecast the end of the resources boom in 2008-09 on at least two occasions, how can we know believe Access when it says it will end in 2013-14. Oh, did Access and the silly SMH really miss the big story, that the resources boom will continue for four more years than Access said it would?
Finally, Access says: “Australia’s fiscal finances, both short and long-term, are hostage of the fate of commodity prices and hence to China’s strength.”
That’s in the class of “No sh-t, Sherlock”. It’s always the case that Australia’s fiscal finances are hostage to commodity prices. Every great bust has been linked to the downside of a resources boom; gold in the 1890s, wool in the 1950s, iron ore, nickel and gold in the late ’60s and early ’70s, energy in the late ’70s and early ’80s. The bust of the ’90s was boosted by strongish resource prices, but the real catalyst was the over-investment in all types of property, which has always played a part in previous busts as our extra cash gets recycled into land and buildings.
But as RBA deputy governor Ric Battelino observed in a speech in Brisbane on August 20 (and ignored by most commentators), this is the first boom we will have had with a floating dollar, which imposes its own discipline on the economy that Access Economics seems not to acknowledge. For example, weakening commodity prices will be followed by a fall in the value of the Australian dollar, it’s what happened from mid-2008 to mid-2009. That will provide a cushion.
If there was a big imponderable that could damage the budget and the economy, it’s the strengthening Australian dollar and the looming second round of quantitative easing by the US Federal Reserve. That could trigger an almighty surge in commodity prices, and drag the dollar up with it, placing greater pressure on the economy, corporate profits and jobs.
Some forecasts and discussion from Access about the potential impact of the stronger dollar on the economy and the budget would make more interesting reading than simply rehearsing “Budget crisis looms”, again.