Economic growth likely to remain sluggish

by Adam Smith17 Jul 2014
The pace of economic growth is likely to remain below trend for the rest of the year, a major bank has claimed.

The Westpac Melbourne Institute Leading Index - which tracks the likely pace of economic growth three to nine months into the future - fell in June to -0.73% from -0.65% in May. The index has grown below trend since February.

Westpac chief economist Bill Evans said the result meant that the Australian economy could be expected to grow below trend for the remainer of the year, with limited momentum into 2015.

"Over the second half of 2014 Westpac is expecting GDP to grow at a 2.8% annualised pace wile domestic demand is expected to grow at a 1.6% pace - still well below trend. The first half of 2015 is expected to show GDP growing at an above-trend 3.4% pace with the pace of domestic demand picking up to 2.3%," he said.

Evans said the moderated pace of growth would belie strong uplift in non-mining investment, housing and consumer spending due to a slowdown in mining investment acting "as a considerable drag on growth".

Evans noted that consumer confidence had also been dealt a shock by the May budget, bit said this was expected to ease through the remainder of the year.

"Such a scenario points to at least another year of steady rates. We do not expect to see a rate hike until August next year," Evans said.