Growth up, but too early to cheer
By
Adam Smith
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20/10/2011 4:00:00 AM
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Australia's economic growth rate has moved higher, but it may be too early to embrace the figures, Westpac has indicated.
The Westpac - Melbourne Institute Leading Index, which tracks the likely pace of economic activity over the next three to nine months, grew to 4.5% in August. The result puts the Index above its long-term trend of 3.3%. Westpac chief economist Bill Evans has warned, however, that it may be too early to predict robust economic growth.
"The growth pattern in the national accounts of a large negative for Q1 followed by a large positive has imposed a degree of volatility on the Index. Accordingly it is too early to embrace the current signal from the leading Index that growth will surge above trend in early 2012," he commented, adding that the signal nevertheless "deserves respect".
Growth in corporate profits and productivity led the surge, aided by an uptick in building approvals. Despite the results, Evans said Westpac expected growth momentum for the second half of the year at an annualised pace of around 1.5%, a pace below trend for the economy.
Evans said some of the key aspects of the forecast were expected to be weak consumer spending and ongoing sluggishness in residential and non-residential building. He maintained the bank's view that the RBA will cut interest rates in December, but said a rate cut in November "is becoming increasingly likely".
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