House prices, wage growth, unemployment: 2020 a year of low expectations

author-avatar By on January 28,2020
House prices, wage growth, unemployment: 2020 a year of low expectations

Photo by Jeremy Bishop on Unsplash

2020 is looking like a pretty ordinary year for the economy, if some of Australia's leading economists are to be believed.

The Conversation's survey of 24 economists from 15 universities revealed many expect little progress on key measures that matter for Australians, such as unemployment, wage growth, house prices and living standards. 

Unemployment is predicted to stay above 5%, while the average annual economic growth forecast has a 'one' in front of it rather than the desired 'two' or 'three'. 

The economists were also asked what the probability of a recession occurring in Australia within the next two years was. The average of their answers put this at 27%, down from their average probability of 29% in June 2019.   

Economic growth in 2020

The Treasury believes the economy can grow at an annual pace of 2.7%, but many of the economists surveyed by The Conversation are less convinced. 

While the economist's forecasts varied from 3% to -0.5%, the average was 1.9%. 

Australia's Economic growth slipped below 2% in March 2019 and has not yet recovered - this is the longest period of growth below 2% since the global financial crisis (GFC).

If it were to remain under 2% throughout the year, it would be the longest period of low growth since the recession of the early 1990's. 

Economist

Forecast: Australian GDP year to December 2020 growth (%) 

Warren Hogan

3.0%

Nigel Stapledon

3.0%

Julie Toth

2.5%

Rebecca Cassells

2.3%

Janine Dixon

2.3%

Guay Lim

2.2%

Danielle Wood

2.1%

Brendan Coates

2.0%

Chris Edmond

2.0%

Saul Eslake

2.0%

Ross Guest

2.0%

Mala Raghavan

2.0%

Tony Makin

1.9%

Average

1.9%

Mark Crosby

1.8%

Warwick McKibbin

1.8%

Steve Whetton

1.7%

Renee Fry-McKibbin

1.6%

Richard Holden

1.6%

Steven Hail

1.5%

Mariano Kulish

1.5%

Margaret McKenzie

1.5%

Jeffrey Sheen

1.5%

Adrian Blundell-Wignall

1.4%

Steve Keen

-0.5%

Source: The Conversation 

According to Panelist Saul Eslake of the University of Tasmania, low growth will be the result of "very slow growth in real wages, the increasing proportion of gross income absorbed by tax, and weakness in property income (interest and rent) as well as (at the margin) the impact of the drought on farm incomes”.

Living standards & unemployment in 2020

Australia's unemployment rate fell last week to 5.1%, surprising many, and has lowered the chance of a February rate cut. 

However the economists' forecasts suggest the unemployment rate is unlikely to fall further, given their average expectation of a 5.4% unemployment rate come December 2020. 

Only one economist, Warren Hogan of Sydney University of Technology, expects the unemployment rate to fall below 5% by the end of the year, while none believe it will reach the 4.5% the Reserve Bank is hoping for.

The Government forecast an unemployment rate of 5% in its Federal Budget. 

Economist

Unemployment rate

Disposable income*

Steve Keen

6.0%

-1.0%

Margaret McKenzie

6.0%

3.0%

Steven Hail

5.7%

0.0%

Richard Holden

5.6%

3.0%

Adrian Blundell-Wignall

5.5%

2.3%

Julie Toth

5.5%

2.75%

Saul Eslake

5.4%

2.5%

Ross Guest

5.4%

3.0%

Tony Makin

5.4%

2.9%

Warwick McKibbin

5.4%

3.0%

Jeffrey Sheen

5.4%

3.2%

Steve Whetton

5.4%

3.1%

Danielle Wood

5.4%

3.0%

Average

5.4%

2.4%

Mark Crosby

5.3%

3.0%

Chris Edmond

5.3%

3.6%

Brendan Coates

5.2%

2.0%

Renee Fry-McKibbin

5.2%

3.3%

Guay Lim

5.2%

Mala Raghavan

5.2%

3.8%

Rebecca Cassells

5.0%

2.8%

Mariano Kulish

5.0%

0.8%

Nigel Stapledon

5.0%

1.25%

Warren Hogan

4.8%

Janine Dixon

0.5%

Source: The Conversation 

Wages and prices in 2020

If these predictions are anything to go by, wage growth will only be a little above the central inflation forecast, resulting in the eighth year in a row of missing the budget's wage growth target. 

The average annual CPI (consumer price index) inflation forecast among the economists is 1.9% over the year, while the average forecast for wage growth is 2.2%  

Only one economist, Margaret McKenzie of Federation University Australia, thinks inflation will reach the Reserve Bank's target band of 2-3%, predicting CPI inflation of 3.5% by the year's end. 

Professor McKenzie says the drought and bushfires will sharply push up the cost of food and essential items such as energy. 

“I don’t think people have thought about it, because there hasn’t been inflation for so long,” she said.

“The problem is that the fires are likely to contract an already weak economy, impelling the Reserve Bank to cut interest rates further, even though its inflation targeting regime would tell it not to.”

Economist

Wage price index 

Consumer price index

Underlying inflation*

Warren Hogan

3.0%

2.0%

2.0%

Saul Eslake

2.8%

2.0%

1.8%

Warwick McKibbin

2.5%

2.2%

2.3%

Jeffrey Sheen

2.5%

1.8%

1.4%

Nigel Stapledon

2.5%

1.75%

1.75%

Rebecca Cassells

2.4%

1.8%

1.9%

Chris Edmond

2.4%

1.9%

1.6%

Guay Lim

2.4%

2.2%

2.0%

Danielle Wood

2.4%

1.8%

1.5%

Julie Toth

2.25%

2.0%

1.75%

Adrian Blundell-Wignall

2.2%

1.9%

1.7%

Renee Fry-McKibbin

2.2%

1.7%

1.4%

Mala Raghavan

2.2%

1.8%

1.5%

Average

2.2%

1.9%

1.7%

Brendan Coates

2.1%

1.7%

1.5%

Richard Holden

2.1%

1.5%

1.3%

Tony Makin

2.1%

1.9%

1.8%

Steve Whetton

2.1%

1.8%

1.3%

Mark Crosby

2.0%

1.5%

1.5%

Ross Guest

2.0%

2.0%

1.8%

Mariano Kulish

2.0%

2.0%

1.5%

Margaret McKenzie

2.0%

3.5%

3.0%

Steven Hail

1.5%

1.0%

1.2%

Steve Keen

1.5%

1.5%

0.5%

Janine Dixon

0.8%

2.0%

2.0%

Source: The Conversation 

House prices in 2020

House prices finished 2019 on a high, recording the strongest quarterly growth in a decade according to CoreLogic. 

Much of this growth was driven by significant price increases in Sydney and Melbourne.

The economists largely expect property prices to continue climbing in 2020, with an average growth forecast of 5%. 

Only one economist, Steve Keen of University College London, predicted negative house price growth in both major cities.

Panellist Nigel Stapledon of the University of NSW meanwhile said the higher home prices will boost perceptions of wealth, opening up the possibility that consumer spending will “surprise on the upside”. 

On average, the economists expect housing investment to fall by 0.9% in 2020, but this is a much more stable figure from the 9.6% slide seen in the 12 months to September 2019. 

Economist

Sydney home prices* 

Melbourne home prices*

Housing investment

Adrian Blundell-Wignall

15%

10%

-4%

Richard Holden

11%

9%

0%

Warren Hogan

10%

10%

4%

Rebecca Cassells

7.2%

6.5%

2.5%

Brendan Coates

7%

7%

-2%

Nigel Stapledon

7%

5%

0%

Danielle Wood

7%

8%

-3%

Ross Guest

6%

6%

-2%

Mark Crosby

5.5%

5.5%

2.5%

Saul Eslake

5%

5%

-8%

Average

5%

5%

-0.9%

Renee Fry-McKibbin

4%

4%

0%

Mariano Kulish

4%

4%

3%

Steven Hail

3%

4%

-5%

Tony Makin

3%

2%

2%

Margaret McKenzie

3%

4%

5%

Jeffrey Sheen

3%

3%

1%

Chris Edmond

2%

3%

5%

Guay Lim

2%

2%

1.5%

Warwick McKibbin

2%

2.2%

-3%

Mala Raghavan

2%

2.5%

-5%

Steve Whetton

2%

2.5%

-7%

Janine Dixon

0%

Julie Toth

2.5%

Steve Keen

-1%

-1%

-12%

Source: The Conversation 

The cash rate in 2020

The panel's average forecast is for only one more cash rate cut to occur in the first half of 2020, with no cuts to occur in the latter half of the year. 

It's now unlikely this cut will occur in February, with only one of the big four banks (NAB) still expecting this to happen. ANZ, CBA and Westpac all think one will happen later, with Westpac Chief Economist Bill Evans saying there will be two more in 2020, and the first will occur in April. 

Just the one rate cut would take the cash rate to 0.50%, a new all-time low, but not low enough to trigger quantitative easing or other 'last resort' methods of fiscal policy. 

Only one economist surveyed predicts any sort of increase to occur to the cash rate, but it seems the rest of them don't share this view. 

Economist

Cash rate June 2020 

Cash rate Dec 2020

Bond rate Dec 2020

Warwick McKibbin

1.00%

2.00%

2.0%

Adrian Blundell-Wignall

0.75%

0.75%

1.7%

Renee Fry-McKibbin

0.75%

0.75%

1.0%

Warren Hogan

0.75%

0.75%

2.0%

Guay Lim

0.75%

0.75%

1.2%

Rebecca Cassells

0.50%

0.75%

1.2%

Brendan Coates

0.50%

0.25%

1.0%

Mark Crosby

0.50%

0.50%

Saul Eslake

0.50%

0.50%

1.8%

Ross Guest

0.50%

0.50%

1.0%

Steven Hail

0.50%

0.25%

0.8%

Steve Keen

0.50%

0.25%

0.8%

Mariano Kulish

0.50%

0.50%

1.5%

Tony Makin

0.50%

0.75%

1.5%

Margaret McKenzie

0.50%

0.50%

1.2%

Mala Raghavan

0.50%

0.75%

1.5%

Jeffrey Sheen

0.50%

0.50%

1.0%

Nigel Stapledon

0.50%

0.50%

1.5%

Julie Toth

0.50%

0.50%

Steve Whetton

0.50%

0.50%

1.1%

Danielle Wood

0.50%

0.50%

1.0%

Average

0.50%

0.60%

1.3%

Chris Edmond

0.25%

0.25%

1.1%

Richard Holden

0.25%

0.25%

0.8%


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William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.

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