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AUSTRALIA
Ian Macfarlane is not given to alarmist statements, and despite concerns about the US economy he continues to forecast healthy growth. The governor of the Reserve Bank of Australia explains policy to Chris Wright.
Asiamoney: How do you expect economic developments in the US to pan out, and how will they affect Australia?
Macfarlane: In the medium-term or long run, the stronger the US is, the better for us. It means the world economy is stronger and it enables us to continue the very good export performance that we have had. In the short term, on a week-- to-week basis, you could easily get the opposite impression. When there is good news in the US economy, even if it is just Alan Greenspan saying he thinks the economy is stronger than before, you see the US dollar go up and the Australian dollar go down. So you get the impression that the stronger the US economy is, the worse it is for Australia. But over any reasonable period that's not the case.
Asiamoney: Is the economic correlation between Australia and the US closer than with most other nations?
Macfarlane: The correlation between Australia and the US is virtually as strong as it is between Canada and the US, and there is no real reason for that. The US isn't our biggest export market -Japan is-and the relationship is nowhere near as close as it is with Canada and the US. People have been trying to explain this for the last five years.
Asiamoney: What's your theory?
Macfarlane: Financial interaction has to be a large part of it. Our financial markets are closely aligned with the US financial markets. In the bond markets and equity markets, whatever happened in the US yesterday is the biggest determinant of what will happen here today.
Asiamoney: A reasonably strong US would be for the benefit of Australia, you say; but is that what you actually expect to see?
Macfarlane: When we say a reasonably strong US we mean a modest slowdown rather than negative growth: we are saying a soft landing rather than a recession. The only way to get to a recession is to assume there is a very big adverse reaction in financial...