Australia | May 23 2007
By Rudi Filapek-Vandyck
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 4.4% in March. Westpac economists point out this is above the index’s long-term trend of 4.0%.
The annualised growth rate of the Coincident Index was 5.7%, also above its long-term trend, of 3.6%.
Westpac believes the March index is but another sign that the Australian economy is likely to have accelerated again in 2007. Real retail sales, for instance, are up 6.5% annualised over the last two quarters, which is the strongest pace since the housing boom of 2003/04.
Westpac economists believe the Leading Index suggests this new found momentum in the Australian economy is likely to be sustained throughout 2007.This increases the risk that inflation pressures will re-emerge with the labour market to tighten further and the housing sector to move into recovery mode.
No wonder Westpac’s anticipation is that the next move in interest rates by the RBA will be up, with the first half of 2008 the likely timing.
The level of the Leading Index increased by 0.4pts (0.2%) in March. The monthly components of the index were mixed during the month. Share prices grew by 2.8% and the real money supply expanded by a brisk 1.4%. Both of these factors have been supportive of the Index in 2006 and 2007.
However, dwelling approvals dropped by 11.4% in March (after a 9% rise) and US industrial production edged 0.2% lower (after a 0.8% increase).
The Coincident Index increased by 1.0pts (0.4%) in March. All three monthly components of the Index were positive in March: retail sales expanded by 0.9%, employment increased by 0.1% and the unemployment rate edged lower to 4.5%.