Australia | Jan 23 2008
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 6.4% in November, above its long term trend of 4.3%.
The economists report the annualised growth rate of the Coincident Index was 3.7% which is around its long term trend of 3.8%.
Westpac economists believe signals from the Leading Index still point to the Australian economy experiencing strong growth over the first half of 2008.
Importantly, they point out, today’s read is up to November, so it does not take account of the share market turmoil that has afflicted the global economy in December and January. That turmoil is likely to negatively impact Australia’s growth prospects directly through weaker business confidence and consumer wealth effects, they believe.
Westpac’s view is that the main forces driving the Australian economy, particularly associated with the income boost from the continued boom in commodity prices, the tight labour markets and associated upward pressure on wages, and tax cuts, will continue to be positive factors in 2008.
The level of the Leading Index increased by 2.6 points (1%), driven by dwelling approvals (up 8.9%); real money supply (up 2.4%) and US industrial production (up 0.3%). The first signs of the recent collapse in the share market index (down 3.3%) appeared in November, but that fall was insufficient to offset the other positives, the economists point out.
The level of the Coincident Index rose by 0.6 points. That was supported by retail trade (up 0.6%) and civilian employment (up 0.5%). Known further strength in these variables is likely to support the Index in December.