Australia | Sep 20 2006
By Rudi Filapek-Vandyck
If any conclusion is to be drawn from one of the leading indicators to gauge the Australian economy’s strength, it is that everything remains in place for above trend GDP growth in the medium term – this despite two interest rate hikes earlier this year.
At least, that’s what Westpac economists are communicating to the market today. Westpac reports the growth rate of the Westpac-Melbourne Institute Leading Index has now reached its highest level since February 2000 indicating growth over the next three to nine months will be “well above trend”.
Westpac economists believe a 4%-5% growth pace for the Australian economy in the second half of 2006 is likely. This would mean that the unexpected slump that was suggested by ABS data for the June quarter is bound to be followed with another growth acceleration. Westpac economists expect the economy to be driven by a much improved export profile plus a significant contribution from a recovery in the residential building cycle.
Does this mean that the market has been reading the RBA incorrectly recently? Westpac notes that one may conclude another rate increase will be necessary to contain inflationary pressures, this does not take away that central bankers still have to respect official data. Having said that, the weak growth numbers for the June quarter
will certainly have raised eyebrows in Martin Place, the economists believe.
The annualised growth rate of the Westpac-Melbourne Institute Leading Index of Economic Activity, which indicates the likely pace of economic activity three to nine months into the future, was 6.4% in July, above its long-term trend of 4.1%.