Gillard Says Aussie Drop Would Be ‘Very Good Thing’ for Economy

Australian Prime Minister Julia Gillard said an extension of recent declines in the nation’s currency would help rebalance growth and warned against undermining confidence in the economy.

“A sustained depreciation of the Australian dollar in those circumstances would be a very good thing, to stimulate further growth in the non-mining sector -- while the firms that have adjusted to the historically high dollar stand to benefit from its fall,” Gillard said in a speech in Canberra today.

Goldman Sachs Group Inc. economists estimated in a report this month that there’s a 20 percent chance of recession in Australia and Bank of America Corp.’s Merrill Lynch sees a 25 percent chance. Gillard criticized pessimistic reporting on the economy, saying “confidence matters” and “any irrational threat to economic confidence is a threat to jobs and growth.”

Gillard’s Labor party hasn’t led in polls for more than 18 months and a Newspoll in the Australian newspaper today showed her falling further behind. The local currency has slumped 11.3 percent this quarter, the worst performer among the group of 10 currencies tracked by Bloomberg, as signs mount that the U.S. economy is strengthening and growth is slowing in Australia’s biggest trading partner, China.

“Perhaps there’s no better example of the failure to separate signal from noise than the pessimists who say that the dollar rising is bad news and then say the dollar falling is bad news,” Gillard told the Committee for Economic Development of Australia today. “Last week a retail industry leader who’s spent years advocating for direct relief from the strong dollar and low-price imports did widespread media complaining that the falling dollar was bad for consumer confidence.”

Currency Squeeze

Australian industry has been squeezed by a currency that held above $1 from mid-June last year to May 10, the longest stretch above parity with the U.S. dollar since the Aussie was freely floated in 1983. The Reserve Bank of Australia lowered borrowing costs by 2 percentage points in the past 20 months to a record-low 2.75 percent as it seeks to rebalance growth from mining regions in the north and west toward manufacturers in the south and east that struggled under the currency’s weight.

Australia’s has avoided recession for 22 years.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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