Au$$ie Dollar impacts and thoughts

For the first time since the Australian dollar floated in 1983 the $A has hit parity- that is it was 1 to 1 with the US $ even if it was for a relative short time. As I write this the $A buys 98.77 cents and as is the nature of our currency the volatility has meant that it will continue to fluctuate.
An interesting point for the impacts of the high dollar which has been hovering in the 99 cent bracket is the whilst the theory states that an appreciation is negative for growth and future growth (see page 132 of Dixon to update yourself) the reality is whilst the economy is booming then the appreciation will actually be good as it will mean the excessive growth will be slowed (or smoothed out) and thus there is less need for macroeconomic policy action.
For a good summary of the Aussie dollar see 'Why our econocrats reckon the high dollar is a good thing'

Before I leave you should check out the latest figures that are available.

ECO latest info

Hola Eco gang,
thought I would make sure you are out there and thinking like the guru.

So I have a number of things for you to consider.

1) If you want the absolute up to date information, or have questions you need answered then call the HSC Advice line on 131112. It is open from 4pm to 10pm from 2-4th Nov for Economics, Check out this link if you want dates for other subjects.

2) The latest inflation figures show that underlying inflation is 3.5% and this is why the RBA put up rates by .25% in for the first time in 18months in Oct. The underlying rate is the important figure for the RBA, so whilst headline inflation is still only 1.3% and thus below the 2-3% target, the underlying figure is important as economic conditions being weak is the only thing holding inflation from soaring.
Thus Australia has an underlying inflation problem- which the RBA only has 1 way of dealing with this issue. Unfortunately this will not solve the problem (this requires micro reform regarding productivity and infrastructure investments)
SO when the RBA meets on this Tuesday (which is always put into the background some horse race) it will be interesting to see what happens.

3) The latest figures I have are as follows;
12 months ago
Growth 0.6% June 09 2.7%
Unemployment 5.8% Aug 09 4.1%
Inflation 1.3% Oct 09 4.5%
Household savings -0.4% Sep 09 +0.9%
cash rate 3.25% 7.0%
current account -$38.4bn -$72.5bn
ToT 109.0 Jun 09 120.1


Good luck.

1.5% inflation = interest rate rise??

The latest RBA meeting on the 6th of October has signalled the end of what Glenn Stevens has called a 'mild downturn'. After holding interest rates at 3% for 12 months the cash rate has now started heading up (though only slightly ) after the RBA decided to put them at 3.25% on Tuesday.
After Lehman Bros in the U.S filed for bankruptcy in Sept 2008 the RBA cut the cash rate by 4.25% over a 6 month period in a bid to prevent major credit and AD issues in Australia.
Thus the signal that Australia's downturn is possibly over has been given by the RBA. If you want to read why G.Stevens believes Australia avoided the major problems experienced in the G7 in particular then read this concise summary.
The question remains- Is Australia out of the recession? and why is the cash rate rising when inflation is still below the 2-3% target range?
Wll the answer is a pre emptive strike, a move to curb excess borrowing at a low rate of interest and to send the market a signal.
Of note is that unemployment has fallen very slightly from 5.8% to 5.7% which is a further indication of a return to expansionary conditions. What will be interesting is that Glenn Stevens also said "a degree of policy discipline will be needed". This means that he expects fiscal policy will also slow down its expansionary phase and that spending will decrease- however will this happen in light of the fact that the next Budget leads up to the next election?
It will be interesting to see what the ALP does??

Yr 12 Eco; An interesting week (updated 11/3)

The past week has been an interesting week in the world of the Australian economy. Statistics seem to drive the political cycle and this makes for interesting viewing in the times we are currently living.
On Tuesday after the RBA decided to hold interest rates on hold for March (after 5 succesive cuts of the cash rate from 7.25% to 3.25%) in a 'vote of confidence'.
In his statement on 3/3/09 Glenn Stevens stated "In Australia, demand has not weakened as much as in other countries and, on the basis of currently available information, the Australian economy has not experienced the sort of large contraction seen elsewhere."

Then on Wednesday the figures the government has been dreading were released. The December quarter growth (GDP) figures showed the economy contracted by 0.5%. This is the first period of negative growth since Dec 2000. The ABS figures also showed that the end of year figures (0.3%) were the lowest since 1990.
Interesting the manufacturing sector contracted by 4.7% and the TCF by 8.5%. On the positive side the agricultural sector expanded production by 10%.


Finally today (Mon 9/3) the World Bank has released a report stating that the volume of world trade will decline for the first time since 1982. Secondly in a report the bank has prepared for next weeks G20 meeting the World Bank states that the world economy will shrink for the first time in 60 years. They have advised developing nations to monitor their banking sectors and to stay away from protectionsim which in their view will 'deepen the crisis'.
Interestingly they te World Bank also suggest that governments like Australia should "create a "vulnerability fund" and to set aside a fraction of what they spend on stimulating their own economies to help others.
After all that dastardly news the positive spin is whilst most of the major OECD nations are officially in recession Australia has the lowest negative growth.