“In the past few years I have been giving more or less the following message – “there will be strong growth but there are risks to this benign scenario”.

“For 2007, my instinct is to say “growth will be slower but still strong” – and the risks are possibly lower”.

This was the guts of our prediction for 2007, published in late 2006.

Now the mighty International Monetary Fund (IMF) has weighed in. “THE world economy is proving to be a lot more resilient than many economists predicted, top IMF officials have said, expressing confidence that global growth will remain solid at almost 5% this year.

“IMF managing director Rodrigo Rato said the US housing market appeared to be bottoming out and a soft landing for the US economy as a whole now seemed more assured. Meanwhile, he added, “spillovers to other countries from slower US growth have so far at least been minimal”.

“Economic recovery in Europe had broadened, Japan was broadly on track and emerging market growth remained vigorous, particularly in India and China. Overall, he judged, the global environment looked quite favourable.

So much for global growth on average. Could Aussie growth be even stronger in 2007 than it was in 2006? What, pray tell, could this mean for interest rates (Henry and his readers already know the answer)?

According to the Westpac-Melbourne Institute leading index of economic activity, economic growth is likely to accelerate in 2007 – the index is showing its highest annualised growth rate in seven years.

Westpac chief economist Bill Evans said that although the index only picked up a fraction of post-November rate hike economy, the growth rate is such that the economy is likely to be overly robust in 2007: “What it’s telling us is that growth over the next three to nine months should be picking up quite strongly “.

Henry was almost deafened pre-Christmas by those “analysts” who believed early 2007 would bring rate cuts. He would like to offer those people some salt, pepper and tomato sauce to go with those words they’ll be eating.

More reading at Henry Thornton.

Peter Fray

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