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ANZ head economist discusses big bank experience

Profile | 30th July 2009

Ali Moore | ABC Lateline Business | 30th July 2009

ALI MOORE, PRESENTER: Economic forecasting is far from an exact science, and maintaining your reputation and credibility while giving a running commentary on both global and domestic economies over more than a decade is no mean feat.One man that succeeded with aplomb is the ANZ’s Saul Eslake, who for 14 years has been the bank’s head economist. He’s announced that next week he’ll leave the ANZ and join the Grattan Institute, a government, university and privately funded think-tank.For a look at his like as a big bank economist I spoke with Saul Eslake earlier this evening.

Saul Eslake welcome to Lateline Business.

SAUL ESLAKE, CHIEF ECONOMIST, ANZ: Thanks for having me, Ali.

ALI MOORE: If we can start with an economic forecast which we so often do. You, along with many other economists, now belief the next move in interest rates will be up. How quickly do you think rates will move higher?

SAUL ESLAKE: Well the financial markets have moved to price in the possibility of a rate rise before Christmas. I think it’s jumping the gun, premature, given that the economy will be fairly flat here in the second half of the year. I don’t think the Reserve Bank will perceive a need to start raising rates before this year. I’d be looking, instead, to around the middle of next year for the first increase in interest rates, and provided the economy is on a more solid recovery track over the following 12 months, I think the Reserve Bank will probably be moving fairly steadily to take Australian interest rates up to something more normal or neutral. That is to say we’d be looking at a cash rate probably by the end of 2011 that it would be pretty close to 5 per cent.

ALI MOORE: In your 14 years with the ANZ, has forecasting ever been as complicated as it is right now?

SAUL ESLAKE: It actually has never been really easy. I wouldn’t claim to have been the best or most accurate forecaster in the Australian market. I have got some thinks right, I have certainly got plenty of things wrong.

ALI MOORE: Have you kept a scorecard?

SAUL ESLAKE: Not officially. I leave it to others, although my experience is that people tend to remember more clearly and are more willing to remind you of the ones you got wrong, rather than the ones you got right.

I certainly make no claim to have foreseen the magnitude or the timing of the financial crisis that’s consumed our attention over almost exactly the past two years. We certainly thought in late 2006, early 2007 that the US housing market was looking wobbly, but no way did we see it would lead to the kind of financial crisis that has since ensued. We certainly didn’t pick the extent to which Australian interest rates would fall over that period.

ALI MOORE: Of course the standard joke is that economists have forecast nine of the last five recessions.

SAUL ESLAKE: People say that about the stock market too. Of course, forecasting recessions is a big call, because if you do forecast recessions well in advance, the Government of the day tends to attack you, and blame you if they are eventually does come one. They accuse you of talking the economy down. So that shouldn’t stop an economist from making a forecast of recession if he genuinely believes it. But nonetheless, resisting government pressure or criticism of saying how it is, can be character forming.

ALI MOORE: Character forming. Tell me about the politics of economic commentary, particularly as the chief economist of one of the big four banks. Is it a fraught role? How much politics is involved and how much economics?

SAUL ESLAKE: Well I’ve always tried, and I think most others try to avoid any appearance of partisan political debate; we leave that up to the politicians and other commentators to make partisan political points. And we try to confine ourselves to well-articulated soundly based analysis of what governments and Central Banks are doing. Often that means you say they are doing the right thing. I think Australia has been well served by the fiscal and monetary actions that have been taken over the last two years in particular. But more broadly I’d say over the last 15 years, even though from time to time I’ve had criticism of the stance of fiscal policy, or less commonly monetary policy. I think Australia has been well served by the way economic policy has been framed over that period.

ALI MOORE: That hasn’t stopped you feeling the icy breath of political power.

SAUL ESLAKE: That’s true. I wouldn’t deny that.

ALI MOORE: Can you tell us about those experiences?

SAUL ESLAKE: There are some stories that are particularly well known. I mean in about 2002 it was … I made a speech to a group of chartered accountants down in Hobart, I think it was, where I made some observations on the way in which the government had handled the transition to accrual accounting in the Budget and at the end of that a journalist asked me if I thought the then government had engaged in any creativing and I said, “Yes, they had”, pointing to the way in which the GST had been classified as a state rather than a federal tax in contravention of the ABS guidelines and the advice of the Auditor General. I talked about the way the then government, like its predecessor, had manipulated the timing of Reserve Bank dividends payments to improve one year’s cash results at the expense of another. So I said yes, they’ve engaged in some creative accounting but they were no worse than other governments.

And to my considerable surprise the then treasurer apparently got on the telephone to the then chief executive of my bank threatening him with unpleasant regulatory actions if I said that sort of thing again. Now I was surprised by that, a) because I didn’t think what I said was worthy of that degree of attention from the nation’s most important economic policymaker, and I had known Mr Costello personally, I thought if he was troubled by what I said he might have rung me up telling me personally as I understand a previous treasurer used to do in fruity tones to people that occupied my motion if the 1980s and ’90s.

ALI MOORE: Do you consider that an inappropriate use or abuse of political power?

SAUL ESLAKE: Whether it’s an abuse of political power is probably for others to judge. I was surprised by it on several fronts, and I think other people have raised their eyebrows at it. As I say, it wasn’t the only instance where things I had said had attracted the wrath of politicians. Sometimes politicians engage with you directly and sometimes they ring and tell you they think you have it wrong. And occasionally they have a right to do so. I think these debates are much better held in public, or face to face, rather than seeking to exert pressure behind the scenes simply to silence someone.

ALI MOORE: You are now joining the Grattan Institute, where your research will be much more long term. Is it a move to get away from day to day forecasting?

SAUL ESLAKE: No, it wasn’t really. I’ve been doing that sort of thing, I guess, for 25 years, if you count the job I was doing before I came to ANZ. It’s been enjoyable, it’s been rewarding. But, you know, 14 years in one job is a long time. While I was away on holiday in the northern hemisphere in the UK, just two or three weeks ago, I actually happened to read a column by Shane Warne in the “London Times” in which he said that when you’ve been around for a long time it’s better to go while people ask why are you, than to stay around so long that people ask why don’t you. And while I won’t say that was what made up my mind it kind of encapsulated what I’d been thinking for a while.

ALI MOORE: Saul Eslake, we wish you all the best with your next career.



What Others Say

“You are one of the best at what you do in the world”
Gail Fosler, Chief Economist, The Conference Board, New York, December 2002

“I have never known an economist to have such a knowledge of world economic facts and to be able to bring to bear so much information in answering a question without notice”
Charles Goode, Chairman, ANZ Bank, July 2009

“An outstanding presentation that was lucid, logical and blended hard facts with humour. And Saul comfortably communicated to meet the wide range of ages, occupations and knowledge of our guests”
Anthony Starkins, Executive Director, First Samuel Ltd, August 2016



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