Not wanting to recap the insult to intelligence that was the May Budget. But when one comes across a critique from Macquarie Economic Research that so comprehensively rips to shreds the Government’s all-important economic growth forecasts, one feels strangely compelled to share it.
You can read the entire paper here, but following are the choicest morsels (emphasis added):
Could Australia’s policymakers be too optimistic on our growth forecasts?
Upbeat growth forecasts from the Treasury and the Reserve Bank of Australia (RBA) are based on very optimistic forecasts for private sector business investment. But, if the RBA’s investment forecasts are too optimistic, not only will investment be weaker, but so too will consumption and housing, as weaker growth results in less income growth and declining confidence. This would not only mean that tighter policy was not required, but even that current policy settings could be too restrictive.
But hang on … wasn’t it only a couple of days ago that our blithering idiot RBA Governor was out spruiking the case for hiking interest rates even more?
The RBA and Treasury forecasts for business investment over the next couple of years are truly extraordinary. Treasury expects non-residential construction to double by mid 2013, while the RBA forecasts are predicated on mining investment doing the same thing.
To put this in perspective, the expected lift in mining investment is equivalent to doubling new housing construction from 150,000 units per year, to 300,000 dwellings in the next two years. Another way to look at this is that the value of mining investment in the next two years is expected to be the same as all the mining investment that took place between 1989 and 2006.
Seven years worth of all-time record high mining investment … in just two years? Perhaps we should give them credit for positive thinking.
But is it realistic thinking?
In our opinion, achieving such stratospheric growth would be extremely difficult.
We’ll take that as a polite “No”.
For example, during the largest mining investment boom in Australia’s history, investment increased from about one per cent of GDP to three per cent of GDP. That is, it took five years for mining investment to increase by two percentage points of GDP. Now, the RBA and Treasury expect mining investment to rise by three percentage points of GDP over a couple of years.
Has anyone mentioned to the #JAFA‘s in the RBA and Treasury, that the economist who gained most fame from predicting the GFC has now predicted a “perfect storm” for the world economy “by 2013 at the latest”? And said that he expects China’s economy to have a “hard landing”?
By putting all their eggs in the mining investment basket, policymakers appear to have no Plan B for what will support the economy if investment disappoints. And this note provides three clear reasons why one should be cautious about counting those mining investment chickens before they are hatched.
Pretty much exactly what Senator Barnaby Joyce has been saying from Day 1.
That we can’t rely solely on selling “red and black rocks” at record-high prices forever; that we need to become “more self-reliant”; and that we need a “contingency plan” against economic dangers from abroad.
So Wayne, about that “forecast” for a single year of budget surplus in 2013?
~ crickets ~
You’ve had your lackeys in Treasury cobble together a budget chock full of utterly unrealistic growth assumptions, hoping to keep the media and the great unwashed masses docile and con-fident in your economic management, right?
And then, when you make a pigs breakfast of it again, you’ll just fake up the actual growth numbers down the track, right?
Just like before … right? (see “Labor Fakes GDP By 4.5%” )
This economic forecasting game is too easy.
So before you dispose of those pig entrails … can anyone play?
Barnaby Is Right 
I won’t quibble with Macquarie Bank’s opinion on the governments growth forecast but caution is warranted when you read;
“This would not only mean that tighter policy was not required, but even that current policy settings could be too restrictive.”
Remember, Macquarie Bank is big in government bonds, any move lower in the benchmark rate, that being the government bond, would be risk free profit for Macquarie Bank i.e KerChing! (the sound of the slot machine paying off). Bond prices rise as yields fall. I wouldn’t put it past Macquarie Bank to speculate on the high probability of the RBA slashing rates if the market is pointing in that direction…. due to the speculators pointing it in that direction.