The Organisation for Economic Co-Operation and Development’s headquarters is up the top of the 16th Arrondissement in Paris, not too far from the Bois de Boulogne. It’s a lovely area of Paris; econocrats and diplomats can go for a lunchtime stroll down Avenue Mozart, which starts at the La Muette metro nearby and heads off southwestward. There’s the inevitable cafe or bakery on most every corner, and often two, and the occasional Grimaud Art Nouveau house to marvel at if you cross Avenue Mozart and continue a bit further south.
Who can blame the OECD, then, for its rotten record of prediction about the Australian economy? If we were there, we’d be spending the afternoon having a wine or six at Le Mozart rather than bothering to work out what was going on in the Australian economy.
Take the latest view of the Australian economy from the OECD on Monday night. “Economic growth is projected to pick up to 3% by 2018,” it said. “The decline in resource-sector investment will tail off and the non-resource sector will be supported by a steady increase in household consumption and investment as wages and employment rise. Further falls in unemployment will help reduce inequality and are not expected to generate strong inflationary pressures.”
It goes on:
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“Monetary policy tightening is expected to commence towards the end of 2017 and this is appropriate given likely monetary-policy developments elsewhere, the cyclical development of the domestic economy and the need to unwind tensions from the low-interest environment, notably in the housing market, which has in many places experienced rising prices for some time. The government envisages fiscal consolidation. In the event of disappointing growth, however, fiscal rather than monetary support should play the leading role given the housing-market concerns and fiscal leeway. Tax reform should be a core element of structural policy.”
Problem is, look at the OECD view just five months ago in its June report on the Australian economy:
“Output growth will gradually strengthen towards 3% in 2017. Adjustment to declining resource-sector investment will continue. Growth in the non-resource sector will pick up, aided by dollar depreciation and a steady increase in household consumption. Further falls in the rate of unemployment are not expected to generate strong inflationary pressures and will help reduce inequality. With receding risks from the housing boom, there is leeway for further monetary policy easing in the event of a new downturn. Close vigilance on housing-market developments is still required. Fiscal consolidation should be back-loaded in light of economic uncertainties. Tax reform should be a core element of structural policy.
And in November 2015 the OECD lauded the pending shift to greater indirect taxation courtesy of the government’s commitment to tax reform, a great example of how it’s better to travel hopefully than to arrive. In mid-2015 the OECD thought the RBA would start 2016 by lifting interest rates. It’s cut them twice this year. But then, in 2014 it predicted that interest rate rises would start in 2015.
This time around, the OECD cut its forecast for economic growth next year to 2.6% from a 3% prediction five months ago; this year’s growth was trimmed to 2.2% from 2.3%. Australian growth in the year to June was 3.3%, and for 2015 as a whole it was 2.5%. Will this be the time the OECD — which usually has less input to its forecasts from Australian economic institutions than the IMF, which sends a team to spend time here having a chat with Treasury, the RBA and others — finally gets it right?
Sadly, though, the OECD’s pronouncements are treated as barely one step removed from tablets brought down from the mountain by Australian media — especially the Financial Review, which lapped up the “rate rise looms” stuff, despite this being the third amazing year in a row the OECD has called it.
And the latest report made no mention of the biggest concern for the government and the Australian economy: weak wage growth (and weak nominal GDP growth — neither feature in the OECD’s list of important data for the economy). The 1.9% annual wages growth rate for the June and March quarters were available for the OECD to incorporate into its latest forecast.
Tomorrow’s private investment figures from the ABS will provide a clue as to the strength of GDP growth for the September (but then the “crapex” data will understate actual private non-mining or non-manufacturing investment, as always), and the current account data next Tuesday will provide further clues. The big imponderable is the impact of the continuing rebound in commodities which no forecasters saw earlier this year, or in June. But we don’t recommend putting your house on any monetary policy predictions emerging from Le Mozart.