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Economist expects recession in 2015

Australia is headed for recession and nothing can be done to stop it, a prominent economist warns.

The mining boom has bred complacency over the past decade and it's now too late to avoid a recession in 2015, says Saxo Bank chief economist Steen Jakobsen.

"It's too late, the wheels are in motion," Mr Jakobsen told AAP.

But recession will create a sense of urgency that could lead to simplification of taxes and regulation, and shift the political agenda away from big miners and banks to small to medium-sized business, Mr Jakobsen says.

"How you deal with low growth, low inflation and a negative environment is what will define Australia over the next two to three years," he said.

As the mining investment boom has slowed, the only sector to step up and take its place has been housing, which has created a housing bubble, Mr Jakobsen said.

The Reserve Bank now has the difficult task of stimulating the economy while reining in the housing bubble, he said.

It will probably need to cut the cash rate to two per cent, but possibly as low as 1.5 per cent, as a result.

The RBA will also need to make changes to regulations on lending in order to control the housing sector, Mr Jakobsen said.

Australia has placed too much focus on the housing market, and policies allowing people to invest in property using their superannuation were "very wrong", he said.

"The intention was to create a diversified portfolio but when society becomes so lopsided, as it is in Australia now with dwellings being the biggest growth factor in the economy - you have to think ahead, you cannot continue just to build houses, you need productivity to go with it," Mr Jakobsen said.

"If you compare Australia to other countries, that's why it's standing still, because the industries you have are all very low productivity-driven ones."

He points to the Australian share market, which is dominated by financial companies and features a tiny information technology sector.

"The problem is that all the financial support, all the political support, goes to the financial sector and the mining sector and that leaves aside the growth engine which is the small and medium-sized enterprises."

Mr Jakobsen says the key is "education, education, education", turning Australia into a research based economy and developing the information technology sector.

"I'm very optimistic on Australia, I just think the complacency and the inability to move the agenda forward has been stopping the changes," Mr Jakobsen said.

"But I think this crisis point, which I believe comes early in 2015, is going to kickstart a lot of positive processes."