Saturday, July 3, 2010

Norman conquest of the market soothsayers - half-yearly survey

THE year 2009-10 was better than anyone expected. Well, almost anyone. While gloom still dominated the scene at this time last year, some in our panel told us then that we were in for some pleasant surprises.

Our forecasters saw some of it, but not all. They told us China would prove stronger than the global financial crisis. They saw the global recession was almost over, and growth would return.

They told us the sharemarket would pick up, on average tipping the S&P/ASX 200 to close the financial year at 4364 points (almost right it was 4301.5).

But they didn't see how strong the rebound would be. No one came within cooee of guessing that unemployment last month would be 5.2 per cent (the average tip was 7.9 per cent). Only a few saw the Reserve Bank raising rates rapidly to slow demand.

Melbourne University's ebullient macro-economist Neville Norman naturally led the bulls. This time last year, Dr Norman forecast GDP growth of 2.5 per cent over the new financial year and predicted China would grow by almost 9 per cent; but warned inflation would remain high, and the Reserve Bank would throw in three interest rate rises before Christmas. There's a well-informed man.

Tim Toohey's team at Goldman Sachs also foresaw China booming, GDP growing 2.2 per cent, and the Reserve's four rate rises by mid-2010. BT's Chris Caton picked both the Australian and the US turnaround.

In a sense, the defining fact of 2009-10 was the stimulus-driven boom in China, and its impact on Australia's terms of trade, dollar and sharemarket. Most of our panel expected China to keep up a solid pace of growth, but Professor Norman and Macquarie's Richard Gibbs were the only ones to pick just how strong it would be.

Damien Boey of Credit Suisse was almost spot on in tipping the dollar to rebound to US85 by mid-2010, while NAB's Alan Oster and Telstra's Geoffrey Sims were also very close. Mr Sims came closest to tipping where local stocks would end up, while HSBC's Tony Cripps was right in undershooting the consensus to tip bond rates at just 5.10 per cent.

But the Palme d'Or for our forecaster of the year goes to Dr Norman not only for getting so many important tips right, but also for making macro-economics so entertaining for the generations of Age readers who have been his students.

Disclosure: Tim Colebatch also studied macro-economics under Professor Norman.