Australian economy? Follow the US 
 
15 may 2007 
 
The US economy is a major indicator for the Australian economy said Dr Chis Caton, Chief Economist, BT Financial Group at the Brisbane Chartered Accountants Business Forum today. 
 
Caton said, while there was a good deal of uncertainty, his best guess was that the Australian dollar would fall back towards 75 cents to the US Dollar by the end of 2007. 
 
“Many economists argue the Australian dollar continues to rise due to strong commodity prices but if this is the case, why didn’t this happen earlier? The US dollar is a much more accurate indicator for the Australian dollar. When the US dollar falls against the currencies of the developed world it trades with, the Australian dollar rises,” said Caton. 
 
The Australian dollar is presently 82.9 cents to the US Dollar. 
 
The US economy has slowed to less than two per cent growth for the last year compared to 2.8 per cent for Australia. The slow down has primarily come from the housing sector in the US. 
 
“World economic growth remains good but the risk is that the US slows more than expected. A slowing economy is like a trapeze artist who falls off but is caught by the net and has a soft landing. The problem occurs when the artist falls outside the net, and a recession hits,” said Caton. 
 
With the Australian growth cycle tending to follow the US growth cycle, there is a risk for the Australian economy if the US moves to a recession. Alan Greenspan stated earlier this month that the chances of the US going into recession this year is one in three. 
 
The Australian economy continues to be strong and the world economy is likely to deliver its fifth successive year of strong growth, which is unheard of in the last thirty years.  
 
Consensus growth forecasts for 2007 suggest 3.1 for Australia compared to a rate of 3.3 for the world. Growth forecasts for China is a massive 10.0.