'Sluggish growth at best' for 2012

by Adam Smith22 Mar 2012

Lacklustre growth is set to be the economic trend for 2012 according to new data.

The Westpac-Melbourne Institute Leading Index, which gauges the likely pace of economic activity over the coming three to nine months, was 2.6% for January, below its long-term trend of 3%.

Westpac senior economist Matthew Hassan said the index points to "sluggish growth at best" for the early part of the year.

"The Leading Index continues to show lacklustre, sub-trend growth momentum in the Australian economy," he said.

The growth rate measured by the index has slowed over the last six months from an above-trend pace of 4.4% in August 2011 to its current 2.6% in January. This slowdown has largely been driven by falls in the amount of overtime worked, manufacturing prices, dwelling approvals and company profits.

Hassan said the index could provide the RBA with food for thought when it next meets, but doubted the Reserve Bank would move on rates in April.

"While Westpac doubts that this is enough to draw an interest rate easing from the RBA at its April meeting, a rate cut may be considered. We suspect the board will require more evidence of sub-trend growth and a weakening labour market before it is comfortable delivering another rate cut," he said.

Hassan predicted the RBA would next move on rates in May or June.

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