Pandemic or not, it's that time of year again when educators are marking exams and writing report cards. In my last column for 2020, I present my annual report card for the Illawarra economy for the year that was.
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There is no doubt that 2020 is the real annus horribilus, certainly in my memory. Last Christmas, who would have thought the year would unfold as it did?
We had what statisticians call a black swan - a completely unpredictable one in 200-year event - one that leaves everyone scratching their heads and wondering where that came from and what happens now? I am talking about COVID-19, of course.
Economists are pretty good at taking statistics such as unemployment, economic growth, real estate prices, building approvals and so on, looking for the trends, assuming they will continue and then forecasting away. But this year, this approach failed.
The thing about black swans is that we have not seen them in our lifetimes, and we have no historical evidence of what happens after them. For these reasons it's a brave economist who makes any predictions about 2021. But let's have a close look at the year that was.
ILLAWARRA UNEMPLOYMENT
All the economic forecasters, myself included, have been saying unemployment was going to get bad, really bad, when we started coming off JobKeeper in September.
But last week the Australian Bureau of Statistics released the unemployment rate for October - the first unemployment data since the government started tightening up and scaling down JobKeeper. The data reported simply doesn't show the doomsday scenario that economists have been predicting.
The region's unemployment figure came in at 5.4 per cent in October - the lowest unemployment rate for the year. Sure, regional unemployment data has a lot of "noise" in it. This means that it jumps around and probably does not measure the true unemployment rate in any given month by a small margin. But even factoring in a margin for statistical error, Illawarra's unemployment data does not show the devastating effect that we economists said that COVID-19 should be having on the economy.
ILLAWARRA HOUSE PRICES
Shortly after the pandemic began, economists around the country and world started predicting massive house price falls. In April, PM Capital's chief economist predicted house prices would fall by more than 10 per cent. In the same month, SQM Research upped the ante and forecast a fall of up to 30 per cent. In May, the Commonwealth Bank came to the party and said house prices could fall by 32 per cent. And it went on and on and on.
Well, weren't they (us) left with egg on their (our) faces. In the Illawarra, to use a boxing analogy, house prices barely took a step back and instead kept jabbing and moving forward. According to the latest Corelogic data which goes to the end of November, house prices in the Illawarra increased in every month this year except May. House prices increased eight per cent for the year so far, they increased three per cent since the pandemic began in April and they increased almost two per cent in the last three months. All the forecasts were wrong. This is bad news for the forecasters, but great news for Illawarra home owners.
This year has shattered my confidence about predictions.
- Alex Frino
BUILDING APPROVALS
The last hard piece of data that's reported for the Illawarra region on a monthly basis is building approvals. Building approvals are very important, because they have always been a decent predictor of what economic activity is going to unfold because building projects approved now will be constructed over the next year or so. Well, the latest Illawarra building approvals data for the September quarter came in at $310.7 million. What is staggering about this figure is that it's up 12 per cent relative to the same period last year. It is also near the record high recorded in September 2018. So much for COVID-19!
So that's pretty much the year as it was for the Illawarra region - a strangely fantastic set of numbers for such a cataclysmic year. But what everyone really wants to know is what's coming in 2021 as far as the economy is concerned.
We have a vaccine just around the corner that could see the majority of Australians jabbed by the end of next year and the whole world inoculated by the middle of 2022. The regional economy has worn the black swan reasonably well, which is pretty good news as we begin to emerge from the pandemic.
So are we going to have a great year next year? Probably. But the honest truth? This year has shattered my confidence about predictions. For this reason, I have to tell you that I do not have the slightest idea.
Have a great Christmas.
- Alex Frino is Professor of Economics and Deputy Vice-Chancellor (Global Strategy) at the University of Wollongong