Alternative egg heads

Every month the Melbourne Institute puts out its economic forecasts for the year ahead. I like to follow these forecasts because the Institute is made up of very smart, egg-head economists in the mould of the Treasury and RBA, but without the constraints of politics or central bank protocol.

Throughout this year they forecast lacklustre growth and rising inflation, a stagflationary year. Obviously they got it right, one of the few aside from MB.

Below find their October forecasts. In summary, all things being equal over the remainder of the financial year, they expect below trend growth around 2.5%, an unchanged unemployment rate (5.2%), contained inflation and no movement in monetary policy (without further European weakness). I agree, though wonder if we’ll still need a rate cut as the current pent up demand release fades.

The one bit I don’t get is the prediction that there’ll be a:

…convergence in growth rates rather than a continuation of the two track economy. This is in large part driven by the moderating outlook for the global economy. We forecast growth in state final demand to converge to around 0.6 per cent by June 2012.

Only way you’ll get there is on a rate cut. Still, worth a look.



  1. Have you put this put there looking for an argument (i.e. like your China PMI from yesterday?)

    Throughout this year they forecast lacklustre growth and rising inflation, a stagflationary year. Obviously they got it right,…

    I mean, fair dinkum, …what is your definition of stagflation. What do you define as high unemployment, high inflation, low growth. Numbers please.

    While I’m at it, “Hi” to the 1970s.

    • You know, I enjoy our little chats. It’s good that you keep me on my toes.

      But this is nitpicking (just as yesterday was). It’s quite clear I’m using “stagflationary” in a colloquial sense. And the Institute itself used the term a couple of months ago.

      Why not choose your battles?

  2. Love the pic.

    I think they are right about convergence. The rate of growth in the minerals sector will taper away. In the meantime, the increase in the savings rates will cease climbing, stabilized expectations about future income growth and assets/savings will kick in, household consumption will benefit and growth will climb back to trend. Why would it not?

    The trolley will crash if/when the Europeans come unstuck, of course.

  3. But the only thing the Europeans can do, in the end, is print ‘bigtime’. So it’s ‘Up! Up! and Away!’

  4. Sideshow Bob…you said ‘Hi to the 1970’s’
    As one on the outside of your wee stoush with H&H was that a comment on H&H’s article or a perception of what is hurtling down the track towards us? ‘It’s deja vu all over again’?