- The latest cover from The Economist calls Australia “perhaps the most successful rich economy”.
- Some analysts expressed light-hearted concern that it could spell trouble for the Australian economy.
- Their concerns are tied to research by Citi, which suggests that positions taken by The Economist are often a reliable reverse indicator.
The Economist is bullish on Australia, and it’s got some analysts worried.
The 175 year-old publication is well known for its thought-provoking covers and articles on key issues in markets and economics.
And its latest cover argues that other developed markets could learn a thing or two from Australia, which is “perhaps the most successful rich economy”.
Citing Australia’s 27-year run without a recession, the article touts the benefits of Australia’s superannuation system (despite the high fees) and high levels of immigration (despite the reported harsh treatment of illegal immigrants in offshore detention).
However, past research suggests that when The Economist says something is good, there’s a pretty good chance it’s about to go bad.
Con Michalakis, the chief investment officer at Statewide Super, expressed his concerns on Twitter:
Ugh – the kiss of death pic.twitter.com/hCTeCSbEZJ
— Con Michalakis (@MichalakisCon) October 25, 2018
Other leading market commentators have also weighed in.
Macquarie economist Justin Fabo is worried:
Peak Straya. Has the Economist called the top?
What the world can learn from Australia – Aussie rules https://t.co/zS3ZOxN2v9
— Justin Fabo (@justinfabo) October 25, 2018
As is Dr Cameron Murray:
Why do I feel this is a bad sign? https://t.co/8F5C8AxJPx
— Cameron Murray (@DrCameronMurray) October 25, 2018
For those who are concerned that The Economist may have just put the mockers on the Australian economy, it’s most likely because of some interesting analysis by Citi two years ago.
The analysts looked at every Economist cover going back to 1998, in which the magazine took a clear stance (bullish or bearish) towards a particular market trend, country or asset class.
They then tracked the post-cover performance of the subjects in question. As it turns out, the results “strongly suggest that covers from The Economist are a reverse indicator”.
Could Australia’s 27-year growth streak now be in jeopardy?
For its part, the Reserve Bank remains optimistic that Australia’s annual economic growth will continue to track above 3%, accompanied by a gradual pick-up in wage growth and inflation.
But the economy is also facing multiple challenges as the housing market downturn accelerates, while global liquidity tightens as major central banks steadily withdraw monetary stimulus.
So whether you put much weight on The Economist covers or not, the next 12 months are shaping up as an interesting time for the Australian economy.
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