Looking on the bright side (except for Julia)

The Aussie dollar is doing its bit 

Stephen Koukoulas does his bit to counter the "it's a looming catastrophe" meme that seems to be dominating commentary on the Australian economy at the moment.

The depreciation of the Australian dollar is just the tonic the Australian economy needs.
It will give a welcome income and competitive lift to exporters and will see local firms and industries that are competing with importers get a boost to their activity as the price of imports increase.

For the exporters that maintained solid activity when the dollar was trading around $US1.05, the recent move below $US0.97 will translate directly to higher profits, additional output and jobs. So too for local firms competing with imports.

This sets the scene for a lift in aggregate economic conditions into 2014 and a rebalancing of economic activity a little away from mining and related sectors towards domestic activity.

It is an outlook where the unbroken run of annual GDP growth will almost certainly extend to a 22nd, 23rd and 24th year. This is a truly fantastic performance in the Australian economy.

It is also likely to extend the time in which the unemployment rate has remained below 6 per cent into an 11th, 12th and 13th year.

And aside from the temporary jump in inflation in 2008 which was inspired by the reckless Howard government spending spree, inflation has been within the target range for two decades.

These stunning economic fundamentals have occurred with the Australian dollar being as high as $US1.10 and as low as $US0.4775. Official interest rates have been as high as 7.5 per cent and as low as 2.75 per cent. The budget has registered a deficit as high as 4.3 per cent of GDP and a surplus as large as 2.0 per cent of GDP.

All of which shows that the floating of the Australian dollar, successful inflation targeting from the RBA and a pragmatic approach to fiscal policy have yielded long run economic benefits.

Of course, the terrible thing for Labor is that some commentators believe the Aussie dollar will settle over the next 6 months at about .90US, which will clearly be very advantageous for the economy, and will have nothing to do with a Coalition win in September, but the Coalition will reap the political benefit of it.