Australian economy reeling as dollar hits all-time low

CANBERRA - The Australian dollar plunged to another new record low at close of trade on Friday after sliding overnight. Overseas money markets took a dim view of Australia's economic standing, sending the currency tumbling to 50.61 US cents on Thursday. While worse was to come, on Friday one Australian dollar bought just over 50 US cents.

The stock market remained firm despite the weak dollar, with the All Ordinaries Index closing down just 0.38 percent, at 3,276.9. Nevertheless, some traders predict that the currency could fall further due to Australia's declining gross domestic product, a cut in interest rates and weakness of the country's key export markets. Michael Workman, an analyst with Commonwealth Bank, likened the currency's fortunes to "road kill". The dollar's previous record low was 50.70 US cents, reached last November.

"At the moment the confidence is just not so good, locally or offshore, so that may hurt the currency in the short-term," Citibank Australia trader Serge Vartanian said.

Also clouding Australia's outlook is the economic crisis in Japan, the nation's biggest export destination. Japanese Finance Minister Kiichi Miyazawa said on Thursday that Japan's debt-ridden economy was close to collapse, driving the yen to a 19-month low against the US dollar. And Howard warned that Japan's economic crisis could hurt Australia.

He added that the low dollar had so far shielded Australia from the worst effects, keeping the nation's exports affordable in Japan. But when asked if Japan's problems would flow through to Australia, he added: "It could." Japan will announce GDP figures on Monday, which analysts expect to show it narrowly avoided a recession in the last three months of 2000.

Politicians and economists fear that Australia is heading for a recession though Howard sticks to his positive mantra, reiterating his belief on Friday that the Australian economy was not in trouble. "It is not in recession, it has not hit the wall, there are weaknesses in certain areas, one of them is the housing industry and we are addressing that today," he said.

Howard announced a A$150 million (US$76.35 million) extension of the first-home owner's grant to boost housing construction, saying it did not clash with the government's commitment to a sensible budget. "You cannot have a situation that just because the treasurer and the prime minister say you have to have a tight budget, you can't do anything anywhere," the prime minister said.

But opposition leader Kim Beazley said the decision was another sign of the government's policy panic ahead of the Ryan by-election. "The economic managers have become the economic manglers, and basically what it is all related to is the by-election in Ryan," Beazley said.

Meanwhile, Goods and Services Tax (GST) collections were slightly higher than expected, Howard said. The Australian Bureau of Statistics estimated that the GST raised A$13.57 billion in the first half of 2000-01, about A$400 million ahead of target, based on the government's full year goal of A$26.30 billion. "The GST collections, according to our measurements, are running according to plan, not significantly ahead but certainly up," he said.

http://atimes.com/oceania/CC10Ah01.html

-- Martin Thompson (mthom1927@aol.com), March 10, 2001