THE strong Australian dollar could squeeze out exports because it is way over valued, but the economy will remain strong, according to economist Dr Doug McTaggart.

Speaking at the annual economic outlook breakfast at Conrad Jupiters, McTaggart said the economy was in great shape and inflation appeared to be under control, with interest rates benefiting from continued low inflation. The chief executive of the Queensland Investment Corporation was positive about record levels of business investment in the Australian economy but cautious about the high value of the dollar and its impact on our balance of
trade figures.

McTaggart says the trend for economic growth 'looks good' based on low inflation, low interest rates and high productivity. He said the stock market would continue to grow at around eight per cent p.a.

"We are in the trough of the current cycle - and it's about a five-year cycle. I think we can expect to move into the expansion phase of the cycle from here out," he said.

He also criticised optimistic commentators on China and India's economic growth saying it was 'vastly over-rated', and similarly played down the 'housing affordability crisis'.

"We gave been there before, the so-called (housing) crisis will pass, it always does," he said.

The Australian obsession for building bigger houses and having fewer people living in them was unrealistic he said.

"We have to get expectations back to sensible levels."

In conclusion, McTaggart said; Earnings and growth will again pick up after a typical mind-decade soft landing; Growth supported equity markets; Interest rates are more likely to go up than down; The commodity boom is a mixed blessing in Australia; The exchange rate appreciation reflects well for Queensland and WA, but poorly for NSW and Victoria; The housing affordability crisis will pass.