Australia | Feb 18 2009
By Rudi Filapek-Vandyck
The annualised growth rate of the Westpac-Melbourne Institute Leading Index, designed to indicate the likely pace of economic activity in Australia three to nine months into the future, was a negative 1.2% in December. Westpac economists point out this is well below the index’s long term trend of a positive growth rate of 3.5%.
The annualised growth rate of the Coincident Index was 3.3%, well up on its November read of 2.4% but the economists believe this was mainly due to the fiscal policy-induced jump in December retail sales with growth still below the Coincident Index’s long term trend of 3.7%.
The growth rate in the Leading Index has now remained in negative territory for the second consecutive month. In the past this has been a useful indication of a likely recession in Australia, say the economists.
Seven of the eight components of the Index contributed to the fall in December. Amongst the domestic components, the main contributions have come from: dwelling approvals (-0.9ppt); share price index (-0.7ppt); overtime worked (-0.3ppt); productivity (-0.7ppt); and corporate profits (-1ppt). Deteriorating conditions abroad have also been a major factor with the US industrial production component detracting an additional 2.3ppts.
The Reserve Bank Board next meets on March 3. Westpac expect the board will further reduce official interest rates with the overnight cash rate eventually moving to 2% by mid-2009.