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Dr Frank Gelber’s economic prognostications

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Dr Frank Gelber, chief economist and director of economics at BIS Shrapnel, is known for his controversial views on the market – what does he think is next for the Aussie economy?

To share his outlook for the economy, the commercial property sector and whether our property market is a bubble waiting to burst, Dr Gelber joins Peter Switzer on Sky News Business Channel’s SWITZER.

Looking flat

“The economy is flat,” says Dr Gelber. “That came after a pretty strong rebound early in the piece after the GFC-induced downturn. There’s nothing scary in why we’re flat. We’re not going to fall in a big heap. We’re not going to have a big debt crisis. Basically it’s just caution by both businesses and households that is keeping consumption expenditure flattish and keeping a lid on the housing market.”

This, however, is a good sign for the Reserve Bank, he says.

“The Reserve Bank wouldn’t have it any other way,” he says. “It’s sort of like a catch-22. If the economy is strong, they raise interest rates and the only way they don’t raise interest rates is if the economy is weak. They want the economy weak to make room for what they think is going to be a whopping great minerals boom.” 

Households saving

“At the moment, households are saving and they could afford to take on more debt if they wanted to, but they don’t want to,” says Dr Gelber. “They’re just in super cautious mode. That will change.”

He says consumer conservatism may have been caused by the 2010 rapid-fire interest rate rises, as he expected. His outlook for 2011 is calmer.

“Three interest rate rises in a year? Well, I think we’ll see probably three interest rate rises over the next year and a half but that’s just the beginning because none of the problems that will really get the Reserve Bank on the edge of their seat have yet happened,” he says.

“We’ve got a slowish economy, we’re looking at about 2.5 per cent this financial year … should we worry about the weak economy? No, we shouldn’t. As we get through and we realise that our jobs aren’t at risk and we can actually afford it, we’ll slowly let go the purse strings and growth will recover. The Reserve Bank’s problem is they think it will recover too strongly.” 

Resources, construction and labour

Dr Gelber comments on the strength of the resources sector.

“Resources investment is really strong. Total construction though is still pretty flattish even with very strong government expenditure which now we’re going to have to wind back in order to balance the budgets in two years’ time,” he says. “We should be investing in infrastructure that will make us more competitive later on.”

Dr Gelber predicts the lack of skilled labour in the Australian workforce will be the biggest challenge for the Reserve Bank in the near future.

“We’re not going to have the sort of magnitudes of problems that the Reserve Bank fears, except in one area and that’s in terms of shortage of skilled labour,” says Dr Gelber. “We haven’t seen that yet, it really won’t come through for another one to two years. We’ve seen the beginnings of it but we haven’t seen it add to wages which is what the Reserve Bank is afraid of.”

Published on: Thursday, February 17, 2011

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