One of the first economists to predict February's rate cut says the Reserve Bank should now put the razor away to avoid bursting what has already become a housing bubble.
Steen Jakobsen, chief economist at Denmark's Saxo Bank, says the Australian economy has hit rock bottom and has a 50/50 chance of falling into recession this year.
We've got a housing bubble on our hands, and our economy and political system are a mess, he says.
But the man who predicted the RBA would be forced to slash rates to two per cent this year, back when most economists were forecasting rate hikes (a two per cent cash rate is now widely expected), believes there is cause for optimism - even if Australian economists can't see it yet.
Although the data suggest the economy is in freefall, things are starting to turn around, as February's rate cut and the lower exchange rate begin to take effect, he said.
"We will go very close to zero growth in Australia but underneath that, the economy is actually marginally improving every day," Mr Jakobsen told AAP.
"It's going to be so marginal that on the data side, my esteemed colleagues are going to give projections that things are falling apart."
Mr Jakobsen said the downturn presents a chance to redefine the political and economic agenda.
The mining boom had inspired laziness and arrogance, as China's demand for our resources drove much of Australia's success during the global financial crisis, he said.
There's dangerous levels of investment in the banking sector and housing market, and not enough investment in technology, infrastructure and education, Mr Jakobsen added.
More investment is needed in government bonds rather than the share market.
"What is booming in Australia is housing and banks, the two sectors that provide zero productivity and no new jobs," Mr Jakobsen said.
"You're shooting yourselves in the foot as long as you continue to pile money into this mindless game of dividend yield chasing instead of believing in productivity and the future Australia."
He said the worst is already being felt, and "we are very close to that point that creates a seachange".
But vision and reform is needed.
"Australia reminds me of the UK in 1979, before Margaret Thatcher came into office," Mr Jakobsen says.
"You are over-unionised, you have a political system that is more concerned about rhetoric than action, you have a political inability to be accountable for anything and of course, you have a huge amount of corruption going on and I think you need to clean it up."
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