Rebalance on the cards

ANZ senior economist Ivan Colhoun was a guest speaker at a business breakfast at the Maroochy RSL.
ANZ senior economist Ivan Colhoun was a guest speaker at a business breakfast at the Maroochy RSL. Brett Wortman

JAPAN could descend into a GFC part II if it does not adequately handle the fall-out from its multiple disasters and the implications would be felt around the world.

But ANZ senior economist Ivan Colhoun, who made the assertion at a business breakfast on Friday, said while the situation in Japan had increased risk and uncertainty, brighter spots were emerging in the US economy and of course Australia’s commodities boom train continues to gain momentum.

There is more good news on jobs and currency, with Mr Colhoun showing job ads increased 30% in February and the Aussie dollar already weakening off the back of US-Yen trades.

Mr Colhoun said the biggest issue for Australia was its terms of trade, the ratio of export to import prices.

It is at its highest level in 150 years.

“This is the reason the dollar is one to one, this is why the Reserve Bank has interest rates much higher than any other comparable country in the world,” he said.

Using the famed seven-year cycle, Mr Colhoun said the latest terms of trade increases began in 2004, meaning it would likely start to taper this year.

“My fearless prediction is we are in the last six to 12 months of a high Australian dollar.”

He spoke about the “mixed to challenging” trading conditions for retailing and showed modelling that revealed house prices, on average, were 13% over-inflated.

He said interest rates would be increased on a slower and more drawn-out trajectory from the latter half of this year and that unrest in the Middle East was causing false inflation on oil prices.

Mr Colhoun said a falling Aussie dollar would help rebalance the two-speed economy, as would a softening on commodities prices, which would then reduce the terms of trade.

But he showed a slide during the breakfast that showed the total number of mining, energy and infrastructure projects in Australia was worth about $10 billion in 2008 and would boom to $45b in 2014.

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