My first job out of university was as an analyst with a major global stockbroker with an exciting bunch of colleagues that would forecast the living daylights out of anything you might be interested in.
For those of us who were over-keen and willing to work between Christmas and New Year, there was a sumptuous lunch in the board room with the managing director during that period.
At this lunch, we used to play a game. Everyone around the table, no matter how junior or senior, was asked for their forecast of the All Ordinaries Index, Cash Rate and Australian dollar on the same date in the following year. The managing director duly recorded these forecasts with a promise of a case of champagne for the person who got it right.
Before I tell you how often people got it right, and how many cases of French champagne were given away, I thought I would play a little game of my own this year. Let me set out my thoughts on where I think the Illawarra economy will be at the end of 2020.
My forecast for the year is therefore that house prices will grow by about 10 percent in 2020 all up.
Illawarra Real Estate Prices in December 2020: Increased by around 10 percent
Let's start with the most interesting "economic variable", that I think is going to be the major driver for the local economy. Even the Reserve Bank in its Statement on Monetary Policy in November 2019 said: "Recent developments have shown that dynamics in the housing market can have more pervasive effects than we had expected".
The reason for this is that most Australian households' wealth is tied up in property, so increases in property prices mean we are wealthier, and the wealthier we are the more we spend and contribute to the economy.
Another reason is that the real estate market influences property development and construction activity, which is one of the biggest employers in the Illawarra region. To those who follow my monthly columns in The Mercury, you will recall I called the end of real estate price falls in September 2019. And the market has been marching up strongly ever since, putting on one to 1.5 percent since. I think that this pace will continue into 2020 and then slow down in the second half of the year. My forecast for the year is therefore that house prices will grow by about 10 percent in 2020 all up.
Building Approvals for 2020: Up marginally, but setting a new record
Building approvals are critical for the region. As stated above, the construction sector is a big employer in the region. Building approvals for the Illawarra region have consistently burst through the $1 billion mark in the last five years. While building approval figures for November and December 2019 are yet to be published by the Australian Bureau of Statistics (ABS), I expect for the year they will come in at around $1.3 billion - roughly the same as last year.
While weak property prices in 2019 caused a slowdown in new projects seeking approval, I expect that the strong pick-up in property prices that we are in the middle of will result in a strengthening in the number of projects being brought forward by developers in the second half of 2020. Consequently building approvals should be up by about six percent in 2020.
Illawarra Unemployment rate in 2020: same as 2019
While the ABS is yet to publish the December figure, I expect that average unemployment for the whole of 2019 will come in at around 5.2 percent. Unemployment in the second half of 2019 was almost one percent worse than the previous year, and I expect this to continue for a little while yet into 2020.
However, the rise in real-estate prices will make people feel good about spending and will also spur building approvals and construction activity in the region. This should stimulate employment in the region and therefore we should see a fall in unemployment towards the end of the year.
So I am forecasting a rise in unemployment in the first part of the year followed by a fall in unemployment in the second half of the year. Across the whole year, this means that unemployment in 2020 should pretty much come in, on average, at the same 5.2 percent we saw in 2019.
So there you have it. Looking into my crystal ball, that's where I see the Illawarra economy heading in 2020. As long as a black swan doesn't roll in during the year, 2020 looks to be shaping up to be a prosperous year for the Illawarra. But forecasts are forecasts and they are not actuals - just my best call on where I think we will end up.
Let me return to the "game" that the group of highly paid stockbrokers used to play and that I referred to earlier on. How many times did I see cases of champagne change hands in my time with that broking firm because analysts would get forecasts perfectly correct? The answer - never.
Alex Frino is Deputy Vice-Chancellor (Global Strategy) and Professor of Economics at the University of Wollongong Australia.