Australia | Feb 20 2008
By Greg Peel
We’ve had interest rises in August and November and again in February. With inflation putting the frighteners through the RBA we are all but certain to have another rise in March, maybe May as well, and possibly another one down the track. The RBA is trying to slow the Australian economy through tighter monetary policy in order to tame inflation. It usually takes a good six months before rate rises impact on economic data.
The latest Westpac-Melbourne Institute leading index of economic activity measure showed a December growth rate reading of 4.7%, down from 6.1% in November. While this seems a substantial drop, December’s figure was still above the 4.2% trend average. The index indicates the likely pace of economic activity three to nine months into the future. The coincident index growth rate read 3.8%, which is right on trend.
Westpac chief economist Bill Evans suggests the numbers show Australia’s economic growth is holding up reasonably well in the first half of 2008. Westpac expects the first half to show an annual pace of 4% growth. Thereafter however, the pace should slow to 3.5% in the second half and 3% in 2009. The RBA will be tightening the screws.
The leading index fell 0.6 points in December. Within the leading index, real money supply increased 1.1% while dwelling approvals fell 16% and the share price index was down 3%. The coincident index rose 1.1 points in December. Within the coincident index, retail trade was up 0.3%, employment up 0.2% and unemployment down 0.2%.
Growth in the coincident index was comfortably above trend throughout 2007 but has now settled over the past three months to the long term trend.
Westpac, like everyone else, expects a 25 basis point rate rise in March.