A Keen eye on the global economy: how our forecasters fared

THIS time last year, only one of our forecasting panel was bold enough to say the Reserve Bank would cut its cash rate to 3 per cent by December 31.

It had just cut the rate twice, from 4.75 per cent to 4.25 per cent. The equivalent of five more cuts was unthinkable, except for Steve Keen.

The University of Western Sydney iconoclast is famously prepared to back his judgment.

Two years ago he walked 200 kilometres from Canberra's Parliament House to the top of Mount Kosciuszko wearing a shirt reading: "I was hopelessly wrong on house prices - ask me how", after losing a bet with Macquarie Group economist Rory Robertson.

A year before that he took this column's prize for most accurately picking the global financial crisis. Most of the rest of the BusinessDay panel didn't think it would happen.

Professor Keen is also the only member of our panel to come close to forecasting the inflation rate.

He picked a mere 2 per cent by December (which is exactly the most recent published figure). The other forecasts were about 2.8 per cent - not shabby but not Keen.

Keen's pessimism flowed from a belief global growth would slide to near 3 per cent (which it did) and that the terms of trade would collapse 10 per cent (which was probably an underestimate - in the first nine months of the year they collapsed 9 per cent).

But he was wrong about how badly the international downturn would hurt Australia.

In the year to September, Australia's economic growth held at 3.1 per cent (close to the average panel year-to-December forecast of 2.9 per cent). Keen had expected 1.7 per cent.

Unemployment is 5.2 per cent, much closer to the panel's average forecast of 5.5 per cent than to Keen's 6.5 per cent.

He was off the mark because the government flicked the switch to deficit far more sharply than any of our panel expected. Keen thought Wayne Swan would finish 2011-12 with a budget deficit of $20 billion. The panel picked $35 billion. Swan gave us $43.7 billion.

It's hard to believe now but a year ago only two of our panel thought the dollar would stay much above $US1.

Only Katie Dean, of ANZ, and Richard Robinson, of BIS Shrapnel, predicted a high dollar all year. They deserve special commendation. The panel's average forecast was US96¢.