Australia | Apr 26 2007
By Chris Shaw
Despite a weaker than expected CPI figure earlier this week there are no signs the Australian economy is slowing down as the Westpac – Melbourne Institute Leading Index of Economic Activity remains firmly entrenched at above trend levels.
The Index came in at 5.7% in February, well above its long-term average of 4.1%, which Westpac chief economist Bill Evans notes is an improvement over the past three months, suggesting economic growth is likely to strengthen in coming months.
This view is supported by the strong outcome for the Coincident Index, which at 5.4% was also well above its long-term trend of 3.6%. Evans suggests the current six months to the end of June may prove to be the strongest such period for consumers since the housing related boom of 2003/04.
Various measures support this view, as resource exports are likely to strengthen further in coming months and Evans sees a pick up in the housing sector given the relatively flat outlook for interest rates at the same time as demand for housing remains strong.
While anticipating a slowing in business investment Evans points out the overall level will remain strong, which should add to the economy’s overall capacity and so help address the capacity constraint issue of recent periods.
In detail, the Index rose 0.9% for the period, with all sectors – share prices, real money supply, dwelling approvals and US industrial production increasing from the previous period.
This increase, given it is predicting conditions in three to nine months time, leads Evans to suggest while the recent CPI outcome is indicative of rates remaining on hold in coming months, the pressures of continued strong economic growth are likely to result in further interest rate hikes early in 2008.