What will the economy do in the new year? Crikey asked economists to gaze into their crystal balls for 2013. Will Santa bring continuing economic good times, or are storm clouds gathering on the horizon — particularly as economies in Europe and the US struggle? The mood was mixed, but the general consensus was the Australian economy will slow …
Chris Caton, chief economist, BT Financial:
“It’ll be a mixed year and the critical question will be: when will the mining boom peak and when will it fall?” Internationally they’ll be better news, he says, but the risks are still there. The US will avoid a fiscal cliff. “The European debt crisis will continue to be an issue but it won’t end in catastrophe. China has slowed down, but it will re-accelerate.”
Professor Steve Keen, University of Western Sydney:
Keen says there are three things to be worried about:
The government’s — and opposition’s — “obsession with a surplus”
The slowing mining volumes in terms of trade — planned investment projects won’t go ahead
The credit slowdown — the decline in household and business borrowing.
“It’s not a particularly healthy outlook … we’re moving into a headwind next year.” Additionally, the high Australian dollar is a worry and it’s not likely to fall. Around the world, Europe “will experience continuing depression — and it is a depression”. The US fiscal cliff is “dangerous”. If it were to go over the edge, US recovery would halt. “China’s days of 9% growth are over.” China will continue to grow, but at a slower pace.
Swan’s surplus announcement is “about bloody time, it’s the first good news I’ve heard in a long time … I’m delighted. Wayne Swan has finally been brave enough to say we don’t need a surplus at this time.”
Alan Oster, chief economist, NAB:
“We’re worried that the economy is slowing down.” The prediction for growth next year is 2.5%, down from 3.5% currently. Unemployment will make its way back up from 5.2% now to 5.7% next year. “It’s still a tough world.”
Internationally, Europe hasn’t bottomed out yet, and “we’re not at all happy about Japan”. The US is more positive; “it may be alright, providing it doesn’t run off the [fiscal] cliff”. He says 8% growth likely in China. And Swan’s surplus announcement is positive: “It’s a really good thing to move away from the idea of a surplus.”
Frank Gelber, chief economist, BIS Shrapnel:
Victoria will go backwards in 2013, and this is “just the beginning”. Sydney, Brisbane and Perth, however, will begin to pick up. The Australian economy will be “OK on average” next year, but with big disparities between the states. The Australian economy is switching gears. Although investment in mining is peaking, production is still strong. “We need other investments to come through.”
“What’s happening in Australia has very little to do with overseas.” Europe is “a basket case, and will be for a decade”. The US is OK and won’t go over the fiscal cliff because “to actually do it would be suicide”. China’s economy will continue to be strong; its growth is just moderating a little.
Gelber also says the surplus announcement is welcome: “Thank god for that. The last thing we need is for governments to be cutting spending, it’s already tight enough … It’s real tough out there for a lot of people.”
Professor John Quiggin, federation fellow at the University of Queensland:
“I guess the obvious evidence is that we’ll face a national slowdown … It seems now that the lowering demand for coal is a long-term shift.” On the international front, “fears of a collapse in the EU have faded”. The evidence in the US is for continued, sluggish growth. The US may go over the fiscal cliff, but it won’t be a disaster. The slowdown in China is likely to continue and the biggest risk for Australia — if an unlikely one — would be if China’s slowdown turned into a slump.