Australian year confounds world

INTEREST rates may be near historically low levels, inflation well in check and the domestic dollar at a competitive rate with the US dollar, but all of this good economic management stands to be swept aside if the world’s largest economy, the US, continues to falter.

That has been the clear message put out by economic commentators and politicians during the 2001-02 financial year and is set to continue to overshadow local fears during the coming financial year.

Despite these warnings the Australian economy continues to thumb its nose at both the US and Europe.

BankWest economist Alan Langford, commenting on the fate of the Australian markets in his monthly brief prior to the RBA board meeting this week, still remains confident about the resilience of the Australian economy.

“Soft economic data out of the US and ongoing global security concerns continue to push bond yields lower across the curve, not only in the US itself, but also in Australia,” he says.

“Nevertheless, runaway domestic house price inflation continues to command the Reserve Bank of Australia’s attention.”

However, he says the creeping doubts about the US economy may be enough to make the RBA hold back on further interest rate rises for a period.

The Australian dollar continues to reflect the resilience of Australia’s business environment.

It started the financial year at around 51 cents and finished the year at 56 cents.

Economists are now expecting the price to go as high as 60 cents within the next few months, capping off the fastest appreciation of the Australian dollar in more than a decade.

Exports, potentially threatened by the dollar’s appreciation, have remained strong.

Figures released on Tuesday by the Australian Bureau of Statistics indicate that the rural, manufacturing and services exports performed strongly in May while, Australia’s import growth remained firm.

The rural sector was dominated by a 12 per cent lift in meat exports and a 13 per cent rise in wool sales.

Manufacturing exports also gained momentum as orders continued to flow in from overseas buyers willing to take advantage of the Australian dollar.

Machinery exports increased 17 per cent in May while other exports jumped 29 per cent due mainly to the surge in non-monetary gold sales.

However, according to economic forecaster BIS Shrapnel, while manufacturing firms have begun to find their own way without relying solely on the aid of tariffs or subsidies, this renewed life spurt could be snuffed out if the Reserve Bank continues to clamp down on interest rates.

In its Economic Outlook released this week, authors Matthew Hassan and Richard Robinson warn that the increased level of debt to income ratio over the past 15 years leaves the Australian economy vulnerable to any interest rate hikes.

Household debt is now running at more than 112 per cent of annual household disposable income, compared with just 50 per cent in 1985-86.

Unperturbed by the international economic environment, Australian business expectations in both the short and medium terms leading to the June quarter 2003 remain positive.

In original terms profit is expected to increase 4.3 per cent in the September quarter 2002, according to the ABS collated expectations data.

In the next year to the June quarter 2003, businesses are expecting profits to increase 15.2 per cent, with medium and large businesses the most bullish, expecting increases of 18.5 per cent and 24 per cent respectively.

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