Growth outlook: A better 2007?

In 2006, Moody’s Economy.com forecasted gross domestic product (GDP) growth at 2.4 percent. Weak consumer spending and a soft housing market are the two main factors weighing on the growth picture.

However, Stroppiana believes the future looks bright for Australia.

“We expect Australia to recover from slowing consumption by boosting exports due to the long-awaited supply response to the minerals boom,” she says. “We expect Australian GDP to expand by 3.1 percent in 2007.”

Sofat also saw room for improvement this year.

“The pace of dwelling construction recovery has slowed on account of recent interest-rate increases, but forward- looking indicators and the low vacancy rate suggest a gradual pick up in the year ahead,” he says.

Inflation readings have been the main factor sparking the RBAhikes. In November, inflation readings breached the central bank’s 2-3 percent target in the third quarter, coming in at 3.05 percent year-over-year.

Improving interest-rate differentials vs. the U.S. could support the Aussie/dollar into the first quarter of 2007, with perhaps even a test of the resistance at 0.8000 on the horizon.

However, traders should monitor Chinese growth, as weaker than expected performance in China could, in turn, damage Aussie export prospects and ultimately weigh on the Aussie dollar.