The OECD said last week that Australia has a one-in-five chance of entering recession and the $6.5 trillion housing market is running the risk of a hard landing.

While Mellor is bearish about the longer term view of the Australian economy he says the OECD's housing gloom is predicated on a forecast of a significant tightening in monetary policy.

"There is very little risk of a substantial rise in interest rates," Mellor says.

"The probability of a three per cent rise in housing interest rates, which is the possibility predicted by the OECD as a cause of a residential property crisis, is a very, very low probability."

Mellor will this week tell the BIS OE annual business forecasting conference that Sydney property prices are headed for a correction if prices keep rising.

"I think there is a bigger risk of a correction coming through in the Sydney market but are prices likely to fall more than 5 or 10 per cent? It's a very low probability."

He says property prices in Sydney might fall about 5 per cent in 2018 and 2019. But he said you had to keep in mind that Sydney prices will have risen by 80 per cent over the past five years.

Melbourne property prices will rise 10 per cent this year, which would be a 60 per cent rise over the past five years.


Brisbane's housing market has had price growth of four to five per cent per annum over the past five years. But Mellor says Brisbane has a "massive" oversupply of inner city apartments and it could take five years to clear that stock.

Perth's housing market is down about 8 per cent from its peak four years ago.Mellor says BIS OE thinks that dwelling construction commencements in Australia will be down about 9 per cent this financial year to 211,000.

But that is the third year in a row of commencements above 210,000. The peak was 232,000 in 2015-16.

"These are phenomenal numbers and basically it means that all markets outside of Sydney over the next 12 months, if they are not already in over supply, will go into over supply," he says.

Mellor says by the end of this year, Sydney will be the only market with an undersupply of housing.

"We are in for a major downturn and I suspect construction activity will fall by about 30 per cent in terms of commencements off the peak of around the middle of last year."

Cooper agrees with Mellor that the outlook for interest rates both here and overseas is benign.

"I would like to underline from a global perspective, the point Robert made that there are unlikely to be any significant interest rate hikes that really represent a risk to residential housing markets internationally," he said


"Yes, we are at a point where US interest rates are starting to edge up but those increases are going to be pretty modest and the same is going to be true elsewhere in the world.

"That is going to provide a continuing favourable backdrop to international flows into residential investment."

Cooper says the important call being made by Oxford Economics at the moment is a positive one in relation to Europe.

"The populism that we have seen drive Brexit and Trump is not going to result in Marine Le Pen coming to power in France," he says.

"The sort of scary scenarios that surround the potential break up of European monetary union and the EU are not likely to happen.

"In terms of the stability and ongoing strength of the global economy at the moment that is probably one of the biggest threats out there beyond what President Trump might do.

"I think it's worth emphasising that as economists we are not all dismal scientists all the time and there are reasons to be positive as well."

Mellor says the purchase of a controlling interest in BIS Shrapnel by Oxford Economics will give the local firm access to a global economic model. Chief economist Frank Gelber is remaining with the firm


"Since the GFC we have found that the world has become a more critical factor in Australia's economic outlook and we think it's important to have solid international connections," he says.

Cooper says there is a global trend toward increased use of independent economic advice.

"Since the global financial crisis the degree of uncertainty about what is happening in the international macro economy and within individual countries has clearly been heightened," he says.

"Increasingly companies need to understand what different scenarios might mean for their business.

"Alongside that people appreciate having a genuinely independent perspective."

BIS OE director David Walker said BIS OE now had the largest team of independent economists in Australia.