Economic outlook surprisingly fair

ECONOMIC growth is expected to rise to 3.5% by year's end, the Australian dollar will remain high and coal and iron ore prices will continue to fall, a monthly market update revealed on Monday.

Westpac released chief economist Bill Evans' monthly update on Monday, signalling continued troubles overseas, while forecasting Australia's gross domestic product to rise 0.2% by December.

The update said the recent increase in the Australian dollar, up another four cents to $1.06, had exceeded forecasts and came despite further deterioration in commodity prices and the terms of trade.

"This move has pushed the dollar into extreme overvalued territory when compared with our fair value estimates," he wrote.

"Some near term correction seems reasonable before a further surge based around a turning point in commodity prices.

"Prices for iron ore and coal had already fallen almost 40% since the 2011 peak, with expectations for another 5% to 10% to be shed from the market value of Australia's most significant exports.

Topics:  abs aud gdp rba terms of trade

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