Growth in the doldrums as RBA move flagged

by Adam Smith19 Apr 2012

Economic growth looks to remain in the doldrums for the near future, with below trend growth for the sixth consecutive month.

The Westpac-Melbourne Institute Leading Index has tracked at 2.4% for February, well below its long-term trend of 2.9%. Westpac chief economist Bill Evans said the index paints a picture of sluggish growth for the foreseeable future.

"The growth rate has picked up somewhat from the absolute low in November last year but the modest decline in February does not encourage too much optimism that growth is likely to exceed trend any time soon. That profile is consistent with Westpac's forecast for growth in the Australian economy in 2012 of 3% which would mean that Australia had grown below trend for five consecutive years," he said.

Evans said dwelling approvals had slumped by 7.8%, dragging down the index. Retail sales and employment also took a hit, falling by 0.1%. In light of the results, Evans forecast a rate cut when the RBA next meets.

"There is a clear observation that, subject to the inflation outlook remaining benign, there is scope to cut rates. Westpac's forecast for the inflation print for the March quarter, which will be released on April 24, is consistent with an ongoing benign outlook providing adequate scope for a 0.25% rate cut on May 1," he said.

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