By Peter Martin
The financial year 2017-18 stumped our panel, along with the official forecasters in Treasury and the Reserve Bank.
Economic growth was stronger than expected, as was US growth, world growth and (importantly for the budget) nominal GDP growth. A year ago the BusinessDay panel predicted a budget deficit of $35 billion for 2017-18. The Treasury predicted $29 billion. It looks as if we will get $18 billion, the lowest budget deficit since the financial crisis and enough to put a surplus in sight.
Economist Saul Eslake.Credit: Jessica Shapiro
They are developments that would been easy enough to forecast if you assumed a high iron ore price, as some of our panel did. But it would have been almost impossible to forecast what came with them. The best measure of living standards, eal net disposable income per capita, barely grew, climbing by just 0.9 per cent on the latest figures; only half of what the panel predicted. Barely growing living standards sat oddly alongside strong growth in national income and taxable profits, implying that while companies and governments did well out of stronger export growth, ordinary households didn’t, at least not so far.
Only Saul Eslake got living standards right, but, like most of the panel, he failed to foresee the size of the surge in national income.
It kept the Australian dollar higher than expected and pushed the Australian share market much higher than expected. Alone among his colleagues, the Commonwealth Bank’s Michael Blythe got the ASX 200 almost exactly right, picking 6200 by June 30, a remarkable jump of 8.4 per cent. Like most of the panelists, Blythe successfully picked another year of Reserve Bank inaction right, predicting a 1.5 per cent cash rate all year.
But he failed to predict the long-awaited surge in non-mining investment. When it finally happened, jumping 10 per cent in a year in which mining investment sank a further 11 per cent, only one of our panel got it right; Margaret McKenzie of the ACTU who picked a fall in mining investment of 5 per cent alongside a jump in non-mining investment of 10 per cent. Richard Yetsenga of the ANZ Bank and Alan Oster of NAB were the next closest.
The sharp divergence in house prices also took the panel by surprise. The latest annual figures show Sydney down 4.2 per cent and Melbourne up 2.2 per cent. None of our panel expected Melbourne to hold up while Sydney slumped, and only two expected Sydney to slump at all: Stephen Koukoulas and Steve Keen.
This year, as in other difficult to forecast years, there’s no award to forecaster of the year. Like 2017-18 itself, our panel was good in parts.