DOLLAR NEEDS TO FREEFALL, SAYS BIS

DOLLAR NEEDS TO FREEFALL, SAYS BIS

AN ECONOMIC expert warns that many of our major industries could continue to struggle on a global scale if the dollar remains at current levels, arguing that recent falls are not enough to spark a revival in some sectors.

Industry analyst and economic forecaster Dr Frank Gelber, of BIS Shrapnel, says the Australian dollar's strength during the mining boom led to a substantial loss in competitiveness for export and import-competing industries.

"Australia's decline in competitiveness through rising costs over the last decade has been driven by the rise in the Australian dollar from US50c at the beginning of last decade to well above parity a few years ago," says Gelber.

The dollar currently sits at US76c-US78c, which he says is low enough to lead a resurgence in tourism and education, yet still falls far short of being able to invigorate those industries which rely heavily on import and export.

"It's still not enough," says Gelber.  "On our calculations, the dollar needs to be between US58c and US70c for Australian industry on average to be competitive. Some still won't be competitive even when the dollar is below US60c."

Industries most vulnerable to the effects of an inflated dollar include some of the economy's largest, including agriculture, manufacturing and finance.

Trade-exposed industries have suffered through the high-dollar period, putting maintenance on hold and allowing their assets to depreciate.

However, BIS says that if the dollar finds a low resting place soon it will be these industries that lead Australia's competitive revival, in terms of both growth and investment.

"We now know the shape of the recovery in Australia's non-mining industries, including the long-awaited recovery in non-mining business investment," says Gelber.

"There is some possibility of an overshoot if confidence turns against Australia, which would be a good thing for Australian industry and jobs. But we are not holding our breath."

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