Media Release

RBA survey: 87% of experts predict recession

        • 53% of experts expect emergency rate cut this week
        • ASX predicted to plunge to an average of 4,460 before recovering
        • 80% expect house prices to dip, signalling potential opportunity for savvy buyers

17 March 2020, Sydney, Australia – Experts are forecasting the Reserve Bank of Australia (RBA) will take drastic measures to right the dropping Aussie economy, with an emergency rate cut likely this week.

The market yesterday tumbled to its lowest level since April 2016 as the coronavirus (COVID-19) continues to wreak havoc on local and international economies.

With an out-of-cycle cut on the cards, Finder conducted an unscheduled Finder RBA Cash Rate Survey™ yesterday, polling 15 experts and economists about the movement of the cash rate and the ASX 200, among other things.

Around half of the economists who responded to the last-minute survey (53%, 8/15) expected the RBA to make an emergency cash rate cut this week.

Graham Cooke, insights manager at Finder, said things are changing rapidly.

"Only a few days before the last RBA cut two weeks ago, 85% of economists said they did not expect a cut and only half thought the ASX 200 would drop by 10% in value.

"Within a week, we had a cut and a 20% drop. This signals the sheer severity and speed of the coronavirus impact," Cooke said.

Three quarters of experts (76%, 10/15) said Monday morning they did not expect the RBA to announce the introduction of quantitative easing.

However, in a sign of how quickly things are changing, Westpac announced just before 3pm on Monday afternoon that it expects both to happen this week.

Noel Whittaker of Queensland University of Technology (QUT) said the RBA would cut this week.

"Everybody else is [cutting, the RBA] don't have much of an option," Whittaker said.

Recession likely, but expected to be short-lived

Almost all experts (87%, 13/15) said a recession was now likely. This is a huge shift from the 89% who did not expect a 2020 recession when surveyed in December.

While most experts expected a recession, two-thirds (67%, 10/15) said it would be over by the end of the year.

Cooke said fear of recession among the general public had been brewing for a while, although economists, until now, were more optimistic.

"We've seen fear of recession among the Australian public grow over recent months, while the vast majority of economists were saying it wouldn't happen.

"COVID-19 pouncing unexpectedly on an already weakened Australian economy has very much changed the game."

Experts were also asked how low the ASX could plunge before a recovery, with the average economist pointing to a bottom of 4,460.

"If markets plunge to the depths predicted here, it will be a 37% drop since the market peak of 20 February. This will be the most significant drop since the 53% plunge post-GFC," Cooke said.

Economists were divided as to whether the government's stimulus package would be sufficient, with over half (54%, 8/15) saying it was not.

Finally, most experts expected house prices to be negatively affected, with 20% (3) expecting a significant drop and 60% (9) expecting a slight drop.

Only two experts (13%) expected house prices to be unaffected.

Cooke said this downturn in the market could present a window for cashed-up Aussies ready to buy.

"If you're one of the first-time buyers who missed out on the 2019 price dip, 2020 could provide a second bite at the apple.

"Keep a close eye on your local market, but be careful – nobody knows what may be around the corner or how long this coronavirus dampening could really last," Cooke said.

Here's what our experts had to say:

Nicholas Frappell, ABC Bullion (cut this week): "I believe that they will cut as part of an internationally coordinated effort to combat the economic effects of coronavirus, with the added element of Australia's exposure to tourism and the Chinese economy."

John Hewson, ANU (hold this week): "Know it won't help much and want to avoid unconventional monetary policy."

Malcolm Wood, Baillieu (cut this week): "Co-ordinated global easing and liquidity support."

David Bassanese, BetaShares (cut this week): "Case to cut so strong no reason to wait."

Craig Emerson, Craig Emerson Economics (cut this week): "To follow other central banks."

John Rolfe, Elders Home Loans (hold this week): "I don't believe our economy would benefit from this. The issue will be productivity not funding. Also, there is no run on our banks and even if there was, our banks are well funded."

Nicholas Gruen, Lateral Economics (hold this week): "The triumph of hope over experience. In the circumstances, it is extraordinary how much prestige the RBA enjoys. They were one of the better banks in the world through the last crisis, but even then they were complacent in ways that were, when you thought about it, extraordinary. They stuck to their schedule and did not have an additional board meeting with the GFC still raging because it was January. They've continued to hold four board meetings a year on the day AFTER the national accounts have been released. That's extraordinary to me. With emergency out-of-cycle cuts elsewhere, perhaps that will end along with other pre-viral complacencies of other systems we have in place in the health system. But the most fundamental problem has been the RBA's reluctance to cut rates even in the face of its own forecasts of unemployment persisting or even rising. This has gone on since late 2013. Now in the game the RBA is in, mistakes are easy because they require you to forecast the future. The RBA correctly forecast that unemployment would remain too high but sat wringing its hands for years and years, occasionally relenting with the minimal rate cut of 25 basis points. It was trying to 'lean against the wind' of asset prices. But it's at least as likely that they exacerbated the bubble because with rate cuts being too little too late, investors saw a one-way bet against interest rates rising any time soon. With more aggressive action a few years ago, growth might have returned – particularly with exports from a lower exchange rate – and rates could well have been on their way up. I'm hoping it will soon be OK for people to admit to themselves that, at least in hindsight, the RBA has been getting things disastrously wrong for over half a decade."

Jeffrey Sheen, Macquarie University (hold this week): "They have already cut. They will wait and see."

Geoffrey Harold Kingston, Macquarie University Business School (hold this week): "The Bank will seek to balance supporting the economy with avoiding the appearance of panic."

Mark Crosby, Monash University (cut this week): "Businesses cannot function without a workforce while still paying rent and interest. The RBA and government need to do what it takes to get these costs closer to zero."

Dr Andrew Wilson, My Housing Market (cut this week): "The RBA need to keep the AUD competitive as global rates are cut – and to act expeditiously to bolster local confidence in clearly uncertain times. A 25 basis point cut, however, would be prudent allowing some scope for another cut perhaps on April 7. Although rate cuts are unlikely to impact confidence in the short term, they will assist in medium-term recovery. Existing near-zero rates, however, will temper the impact of cuts with fiscal policy now clearly the main game. Fiscal policy stimulus should be directed to untapped demand in the property sector – first home buyer grants as per Rudd in 2009 and Hawke 1983 – and initiatives to ease finance constraints on property development and investors."

Jonathan Chancellor, Property Observer (cut this week): "Every little bit will help as we struggle to cope with the coronavirus and the looming recession."

Rich Harvey, Propertybuyer (hold this week): "The RBA will be forced to reduce interest rates to deal with the impact of coronavirus on consumer confidence and keep our AUD competitive given that the US Fed Reserve dropped rates dramatically to zero. As a net exporter we have to have a competitive exchange rate to boost our export growth. The government is hoping the fiscal stimulus measures will maintain momentum for the economy to come out the other side stronger. Property markets will soften but unlikely that prices reduce much as there is plenty of pent up demand."

Noel Whittaker, QUT (cut this week): "Everybody else is [cutting, the RBA] don't have much option."

Clement Tisdell, UQ-School of Economics (hold this week): "They would be wise to follow the EU and not cut interest rates further."

Other participants: Besa Deda, St.George Bank. Angela Jackson, Equity Economics. Marcel Thieliant, Capital Economics.


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