Australia should not be foolish in thinking it is going to continue having uninterrupted economic expansion, RBA governor Glenn Stevens says, warning that a downturn would happen eventually.
Mr Stevens said the country was "building up this myth of 22 years of uninterrupted growth" and that sooner or later, there was a "probability of ... more or less 100 per cent" that a downturn would happen.
"We would be foolish to think that we have found the secret of completely eliminating the cycle, because we haven't," Mr Stevens told The Wall Street Journal. Advertisement
"But if we are sensible and prudent and just a bit lucky, we can have cyclical downturns that are not so deep. It is the deep ones that are damaging. It is the deep ones that cast a long shadow on unemployment for years after."
Mr Stevens, who together with other Reserve Bank officials has jawboned on the need for a lower exchange rate in recent weeks, declined to speak further on the Australian dollar.
He said there were reasons to be optimistic about the future, but there was a need to foster innovation and productivity.
For all the RBA’s talking and the forecasts of most market economists, Australian businesses expect the Aussie to remain stubbornly strong. A regular survey of active importers and exporters by East and Partners found businesses on average expected the Aussie to be still worth US90.7¢ next September.
However, the survey demonstrated a couple of other interesting things. It was taken just a couple of weeks ago, at the end of last month, and yet it’s nearest term forecast already looks highly unlikely as the average guess was that the Aussie would be worth US93.9¢ at the end of December. So the first lesson is confirmation of the universal truth that the Aussie is unforecastable.
Among the factors pushing the Aussie back up to US91¢ on Saturday morning was a version of the old market adage to “buy the rumour, sell the news”. Except in this case it was sell the Aussie on the payrolls rumour and buy on the news. It’s also been suggested there was a trading reaction to the Aussie not falling further on that strong US employment growth – the shorts bailed when the trend failed.
On more fundamental grounds though, the Aussie could hold stubbornly up because a stronger US economy means stronger demand in a stronger global economy. Oil also rallied over the weekend on thoughts of a better America.
Then along came the better-than-expected Chinese trade figures on Sunday. With Chinese industrial production and retail sales statistics tomorrow having every chance of being stronger for longer as well, we continue to be carried along as part of the China trade.
And starting soon is the blandly-titled Central Economic Work conference – Beijing’s inner core fleshing out the major reforms from the Third Plenum and setting targets and plans for 2014. As Reuters reported last week, there is an interesting debate going on about whether the government should shoot for growth of 7.5 or 7 per cent next year. The one sure thing is that the usual China bears will misrepresent the latter and the reasons for it, if it comes to pass.
What’s in prospect in 2014 is the world’s two biggest economies growing quite nicely and Japan doing better than we’re used to. Europe remains sick and, in some ways, that’s not an entirely bad thing, as long as you’re not European. The last time there was good synchronised growth, the world was launching into an unsustainable bubble. For the sake of cementing the recovery, commodity prices are quite high enough, thankyou very much.
Without going that far, it is possible that our biggest export earner, iron ore, will continue to defy even the more optimistic forecasters. Absolutely nobody at the start of this year thought Pilbara rust would still be nudging $US140 a tonne in December. There are plenty of perma-bears who’ve been predicting its collapse ever since it recovered from the initial GFC shock. One of these days, if they live long enough, they’ll possibly be correct, but it doesn’t look like happening today or tomorrow.
So for all we might wish the Aussie was weaker to help our transition out of phase 2 of the commodities boom (digging the new holes), phase 3 (exporting the stuff from those holes) is still growing, still supporting our reputation as a commodity play currency. The stronger for longer China will do that, even when the country’s steel industry doesn’t make profit.
No wonder then, that Glenn Stevens reminded the WSJ that Australia will eventually have another slowdown.
My pick for the high in the AUD was 110 cents going back many years ago. (Shadow can confirm that one, he has files on everything else) Now it's on the way down, I wonder where it will stop? Will it make 45 cents like a decade ago?
The next trick of our glorious banks will be to charge us a fee for using net bank!!! You are no longer customer, you are property!!!
Reserve Bank of Australia governor Glenn Stevens has indicated he wants an Aussie dollar closer to 85 US cents, while pointing to "promising signs" that the economy is transitioning away from the mining boom.
But he said that turning the lower currency into a real depreciation that spurs growth would require real wage cuts.
The currency continued its recent slide overnight, falling below 90 US cents to be trading around 89.30 US cents this morning. On Thursday it closed at 90.31 US cents.
In an interview with The Australian Financial Review, just weeks after explicitly declaring currency intervention to be part of his "toolbox", the governor told the Financial Review he would prefer a lower dollar over lower interest rates as a mechanism to spur the economy.
"To the extent that we get some more easing in financial conditions, at this point it's probably more preferable for that to be via a lower currency at the margin than lower interest rates," he said.
He said with the falling terms of trade, he expects the Australian dollar's natural level to be lower than its current rate, which was US90.24¢ on Thursday. "I thought [US]85 cents would be closer to the mark than [US]95 cents . . .but really, I don't think we can be that precise.
"I just think that if things over the medium term evolve as we're presently assuming – and I think it's reasonable to make these assumptions – it's going to be surprising if a nine at the front is the right number," he said.
He said with the falling terms of trade, he expects the Australian dollar's natural level to be lower than its current rate, which was US90.24¢ on Thursday. "I thought [US]85 cents would be closer to the mark than [US]95 cents . . .but really, I don't think we can be that precise.
Someone still believes there's a Goldilocks? No such animal!
Quote:
But he said that turning the lower currency into a real depreciation that spurs growth would require real wage cuts.
If we are going down that path, then there is no need for central banks, their fiat paper and devaluation.
30 cents Euro here we come!
The next trick of our glorious banks will be to charge us a fee for using net bank!!! You are no longer customer, you are property!!!
look at that, golly sock. don't see that too often anymore.
all of the bulls on here have said housing is a cycle. it's not our problem you are dumber than a box of hammers.
Scared little piggy? You should with a house made of negative equity x
After a bubble has burst, no one denies that it existed. But before it does, the popular refrain is that though bubbles existed elsewhere in the world, “there’s no bubble here”. So housing bubbles are admitted to have existed in Japan, the USA, Spain and Ireland – because they’ve already burst.
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