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J curve heading our way again

THE October trade figures were absolutely stunning. So good in fact that Australian market economists should be embarrassed to show their scarlet faces in public.

Booming exports and flat imports produced a trade surplus of $324 million. The consensus among the experts was a forecast deficit of $625 million.

Perhaps these highly paid characters should go down to the docks to count the containers being loaded. Anyone can make a mistake, but an error 200 per cent in the wrong direction does not inspire confidence. It is not really funny. Businesses that try to forward plan might as well pick their own numbers out of a hat.

Australia has posted back to back trade surpluses for the first time in three years. Goods exports jumped 7.2 per cent in October with particular strength in sales of wool, beef, aluminium and crude oil. All of which is obviously good news for WA.

What is happening is something called the J curve effect. When a currency goes down virtually in a straight line, as the Australian dollar has done, it eventually reaches a point where it is so competitive that exports move up strongly and imports stall. The trade balance turns up, and the resultant graph looks like a hockey stick. The next move is generally a sharp recovery in the currency.

Reserve Bank Governor Ian Macfarlane has issued the message that the slow down in the US is good tidings for us, that buoyant exports will pick up the slack from a drop in housing and consumer spending and Australia can book its tenth year of solid expansion in 2001. He has also given a broad hint that domestic interest rates have peaked.

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