April 21, 2010The annualised growth rate of the
Westpac–
Melbourne Institute Leading Index - which indicates the likely pace of economic activity three to nine months into the future - was 7.2 percent in February, well above its long term trend of 2.8 percent.
According to new data out this morning, the annualised growth rate of the Coincident Index was 3.6 percent, also above its long term trend of 3.2 percent.
Westpac Chief Economist Bill Evans says the result signals growth in the Australian economy will accelerate through 2010 to well above trend by year's end.
“That is a stronger outlook than Westpac's current forecast for growth through the year and certainly stronger than the ‘trend growth’ pace for 2010 which the Reserve Bank Board forecast in the minutes from the April Board meeting,” Evans says.
He assures the Index is indicating the risk profile for growth is now tilted firmly in the upward direction.
“The level of the Leading Index increased from 256.5 to 257.8 – an increase of 1.3 points or 0.5 percent.”
KEY GROWTH DRIVERSGlobal factors which are driving the extraordinary increase in the growth pace of the Leading Index include: commodity prices (2.7 ppt's) and US industrial production (1.7 ppt's).
Other contributors were overtime worked (0.5 ppt's); productivity (0.6 ppt's) and corporate profits (1.1 ppt's).
Meanwhile, components which detracted from growth improvement include: all ordinaries index (–0.6 ppt's); real money supply (–0.7 ppt's) and dwelling approvals (–0.2 ppt's).
In terms of the Coincident Index, levels increased from 247.8 to 247.9 – a marginal spike of only 0.1 points.
According to Evans, the 2.9 ppt increase in the growth rate of the Coincident Index was mainly due to the improvement in the labour market (1.7 ppt's); household incomes (0.8 ppt's) and production (0.7 ppt's).
The sluggishness in the retail sector subtracted 0.3 ppt's from the growth improvement.
RBA ‘LIKELY TO TIGHTEN’While results show the economy is slowly picking up, Westpac warns of further rate rises when the Reserve Bank Board next meets on May 4.
“We expect that the Bank is likely to tighten again in May, or June at the very latest, restoring rates to ‘normal’ before pausing to assess the interaction of the boost to incomes from the commodity boom and the offsetting effect of rate hikes and an unusually cautious consumer on the growth outlook,” Evans adds.
“These interactions are clear from the breakdown of the contributors to the rise in the growth rate of the Leading Index with commodity prices and global recovery more than offsetting the ‘drag’ from some domestic factors.”
