State of the Australian economy

State of the Australian economy

Chief economist predicts Australian dollar will reach $US1.05 by end of the year

The Australian dollar is expected to reach new highs peaking at $US1.05 in the next three to six months, according to Westpac chief economist, Bill Evans.

“The fact that it’s going to go well over parity is not so bad for the economy as people think because our forecast is that it will start to come down by about the second half of next year,” Evans said. “The US dollar will keep falling, the Australian dollar will keep rising. All other currencies will also strengthen against the US dollar.”

Evans expects 2011 to be weaker than 2010 mainly because of a weaker contribution from advanced economies (for example, US and Japan).

“Companies slashed their inventories, funding was difficult and then they realised they over-reacted, so through 2009, they started to re-build their inventories, which has given 2010, a decent starting for growth,” he said. “The US, Japan and Europe are likely to have weaker years next year than what they had in 2010, but we don’t say the same about China. Its growth will continue to be quite strong.

“We’re [Australia] very fortunate to be linking into this incredible growth engine [China], but we’re still going to be vulnerable to what happens there.”

Evans touched on consumer sentiment, which he said was showing pretty strong signals.

“What we can expect out of the consumer is decent growth, but nothing explosive,” Evans said. “They’re much more concerned about debt levels and getting them down. It’s going to be a better Christmas period than we’re expecting.”

Evans was a guest speaker at the recent Westcon Imagine event that was held at the Sheraton on the Park in Sydney.

More than 740 delegates registered for the Sydney event that included vendors, partners and customers.

At the time of publication the Australian dollar was trading at $US0.996.

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