Economist predicts higher $Aust, $US

Press, 22 July 1986, Page 37

Economist predicts higher $Aust, $US

PA Wellington A revival of the Australian and United States currencies has been picked by ANZ Bank’s chief economist, Mr David Ashby. In an interview in Wellington, Mr Ashby said there had been an overreaction in Australia to the recently announced balance of payments deficit

He said there would be a similar over-reaction sending the Australian dollar back up when it was realised that the balance of trade had started to improve. Volumes of

trade showed this was the case, though prices had not

However, there was still a need for reform of the labour market, which had very old-fashioned practices of wage determination and state spending.

It would be a shame if a resurgence of confidence in the Australian dollar reduced the pressure for these reforms.

The U.S. was likely to experience stronger economic growth in the second half of the year, than it had so far in the first half, Mr Ashby said.

This was because the decline in interest rates in

the U.S. would have benefits in investment, and because the trade accounts would start to look better, eliminating a big drag on the economy. The trade accounts would improve in about three or four months, pointing to stronger growth in 1986-87. This should mean a pick-up in credit demand in the U.S. and a probable rise in inflation to about 5 or 6 per cent on an annualised basis. Interest rates were then likely to rise, and the U.S. dollar could be expected to strengthen slightly by mid-1987, he said.