forecasts by cycles correlated to index, page-76

Commsec's chief economist Craig James says much of the losses relate to profit taking.

"Fund managers around the world are scrambling to lock in some of the gains, very sharp gains that we are seeing in terms of commodity markets and equity markets over the past month and certainly over the past quarter," he said.

"So a fair degree of profit taking is occurring at the moment, particularly in the commodity markets and of course, that is hitting Australia quite hard."

Craig James also thinks that the World Banks forecasts are a scapegoat for a correction that was going to come anyway.

"The World Bank has issued a new forecast for economic growth but those forecasts were originally released on June 11, around about a fortnight ago," he said.

"Those forecasts were out at that time, barely caused a ripple in the market. Overnight it is blamed for the fact that the equity and commodity markets have fallen. I think it is more the scapegoat rather than anything else. I think what we are seeing is just good old fashioned profit taking."

Commodity strength

Mr James sees some longer-term causes for optimism, particularly in regards to the Australian economy.

"Overall, it is a fairly favourable picture over the longer term. While there is a decline in commodity export revenue over the next 12 months, a lot of that is driven by weaker prices for coal and iron ore, and coal and iron ore prices soared over the past year," he said.

"They were clearly not going to be sustained, and that is why we are seeing the drop, but if you look at mineral and energy commodities more specifically, they are going to be up around about 6 per cent over the year. Farm exports are going to rise a little over the next 12 months.

"When you consider the sort of environment we are in, to see the commodity export revenues rise is a very encouraging sign."

And he thinks that the pick up in farm export earnings, and this financial year's expected 36 per cent increase in mineral and energy export revenues should have a strong positive impact on economic growth.

"I think we are seeing a turnaround at the moment. We are seeing slow pick up over the past couple of months and that is going to continue in coming months," he said.

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