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Last Updated:  Tuesday, 4 March, 2003, 10:18 GMT
Aussie dollar hits three-year high
Australian cricket supporters
Australia's economy has been booming for years
The Australian dollar has hit a three-year high, after a prediction that the country's economy should shrug off the current global downturn.

Describing Australia as one of the industrialised world's top performers, the Organisation for Economic Cooperation and Development (OECD) predicted that the country's economy would grow by 3.25% this year and 3.75% in 2004.

The news boosted the Australian dollar to a three-year high against the US dollar, and a three-and-a-half year high against the Japanese yen.

The currency was also helped by a sharp drop in Australia's monthly trade deficit, which halved from December's record levels.

Overall, though, the Australian dollar has been pushed upwards by a combination of strong prices for commodities, which are Australia's main export, high interest rates, which currently stand at 4.75%, and the general weakness of the US dollar.

Government revels in praise

Australian cattle
I think the mood is one of a bunkering down mentality, you pull in your belt and look after costs

The OECD singled out the conservative government's labour market reforms and the central bank's interest rate policy for helping steer Australia's economy in the right direction.

And the organisation warned that further reforms of both labour and financial markets were needed to make economic success stick.

Government officials were quick to seize on the encouragement, as they are currently embroiled in dispute with both trade unions and opposition parties about how far reforms should go.

The country's upper house, the opposition-controlled Senate, has already rejected a number of reforms that would have cut back subsidies for medicines and made it easier to sack workers.

House price bubble

But the OECD also sees difficulties ahead and warns that the drought, which has devastated the livelihood of thousands of farmers, could still damage the wider economy.

Because of the drought - now in its third year - the OECD actually cut its original growth forecast for Australia by half a percentage point.

However, its prediction of 3.25% growth is still a quarter of a percentage point above the government's own expectation and well above the forecast of 2.2% growth across the OECD's members, the world's 30 richest industralised nations.

Another worry is Australia's house price boom, which could still tun into a "bubble that will burst", the OECD economists warn.

Trade deficit shrivels

Australia's trade deficit, meanwhile, plummeted to A$1.4bn (543m, $854m), one-quarter less than predicted by economists and well below December's whopping A$3bn record deficit.

"The export numbers are encouraging in the sense we are maintaining our competitiveness despite the appreciation of the Aussie dollar", said Anthony Thompson of HSBC.

Aussie dollar keeps on booming
25 Feb 03 |  Business
Australian economy defies drought
04 Dec 02 |  Business
Australian growth hit by drought
27 Nov 02 |  Business
Drought hurts Australia's economy
11 Nov 02 |  Business
Australian employment falls
08 Aug 02 |  Business
Country Profile: Australia
21 Feb 02 |  Country profiles

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