Trend finally going in right direction

Lost in the fact that economists have been cutting their forecasts for next year is that they still expect growth to improve.

Lost in the fact that economists have been cutting their forecasts for next year is that they still expect growth to improve.

It might not be until the end of the year, mind you, but that's still different to saying there'll be a downturn.

Similarly, it would be a mistake to extrapolate the lacklustre September quarter national accounts as showing where the economy is going.

Not only are they water under the bridge, they went against the current.

Taken at face value they suggest the economy has deteriorated, with annual growth dropping to 2.3 per cent.

Worse, GDP per capita grew just 0.2 per cent in the quarter or 0.7 per cent over the year, barely a statistical revision away from a recession.

But that includes figures going back 12 months and puts as much store on what was happening in, say, January as September.

It's better to take the half year, comprising the September and June quarters, and compare them with the two before. This shows growth lifted from an annualised 2.2 per cent to 2.4 per cent.

On the more telling per capita basis, we've gone from 0.6 per cent to 0.8 per cent annual growth. That's nothing to write home about but the trend is finally going in the right direction.

The fact is that for most of the year households were loath to spend, building was in a slump, and mining investment was providing the growth, such as it was.

More recent figures show sales are picking up, building approvals are on the mend jumping by an annual 20 per cent in October and non-mining businesses are at least thinking about investing again. And I don't even have to mention property prices.

The only downer is employment, which considering the weakness in economic growth all year is holding up remarkably well, probably because more baby boomers are retiring and shrinking the workforce.

The most striking thing about the national accounts is how well exports are doing - which brings me to the dollar. There's unanimity among the experts that it will drop, mainly because the Reserve Bank says it should.

Trouble is, while it would suit us for it to fall because commodity prices are likely to drop, there's no compelling economic reason it should. Just saying it's over valued doesn't make it so.

On the contrary, the famous Big Mac index compiled by The Economist, backed up by CommSec's home-grown iPad index, suggest the dollar's fair value is around US93¢.

These both work on the principle that the same thing should have the same price wherever it's sold after taking the exchange rate into account.

The beauty of the Big Mac is it's made on site so gets around freight costs and the like while the iPad has the virtue of being internationally traded. Whatever, they come up with similar results.

The fact the dollar refuses to budge below US90¢ suggests commodity prices aren't expected to fall. This makes sense considering the OECD is forecasting an upturn in the US, Japan, China and even Europe sometime next year.

My guess is the pundits will be proved right, but it'll take longer than they expect.

Sometime next year the US will wind back its money printing, which will push up the US dollar and so drag ours down.

Since this is my last print column for the year, all the best for the season. And check out smh.com.au/money and twitter @moneypotts

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