Future economic activity remains bleak

Published on Wed, 18/04/2012, 02:00:50

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The Westpac-Melbourne Institute leading index shows economic activity for the next three to nine months remains lacklustre.

The annualised growth rate of the index was 2.4 per cent in February 2012, below its long-term trend of 2.9 per cent. The annualised growth rate of the coincident index, which gives a pulse of current activity, was 2.3 per cent, also below its long term trend of 2.9 per cent.

Bill Evans, Westpac chief economist, said this is the sixth consecutive month the growth rate in the Leading Index has been below trend.

“The growth rate has picked up somewhat from the absolute low in November last year but the modest decline in February does not encourage too much optimism that growth is likely to exceed trend any time soon,” he said.

“That profile is consistent with Westpac's forecast for growth in the Australian economy in 2012 of 3 per cent, which would mean that Australia had grown below trend for five consecutive years.”

Following the release of the Reserve Bank’s minutes for its meeting on April 3 it is apparent that the case for a rate cut is strong.

“The Board is concerned about the sharp differences between sectors and regions; recognises that there is a significant fiscal tightening; and notes that non mining investment was likely to remain sluggish,” Evans said 

“There is a clear observation that, subject to the inflation outlook remaining benign, there is scope to cut rates.”


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