From Fairfax:
Chief economist for Australia Paul Dales says that even the Aussie’s current level “poses a serious threat to the economic outlook”.
…”The level of the currency is a big deal for an open economy like Australia and is especially important at the moment for two reasons,” says Dales.
“First, with interest rates at a record low, a weaker exchange rate is arguably a more effective way to boost economic growth and inflation than further interest rate cuts.”
“Second, the 25 per cent weakening in the dollar on a trade-weighted basis since 2013 has played a large role in supporting GDP growth.”
He calculates that the Aussie’s decline, in line with commodity price falls, since 2013 has added an average 0.7 percentage points to annual growth in GDP.
Non-resource net exports – after subtracting imports – accounted for 0.9 percentage points of Australia’s surprise fourth-quarter surge in GDP, to 3 per cent year-on-year.
All this could be undone, however, if the Aussie continued to firm, although the improvement in national income from the higher iron ore price would help offset the hit to non-resource exports.
“If other things remained the same, the annual rate of GDP growth would fall from 3 per cent at the end of last year to just 1 per cent by the end of this year,” said Dales.
Yep. ‘Making room’ for a housing bubble by hollowing out your tradable sectors is stupid at the best of times. Doing it during a bust for those same sectors is economic vandalism.
