May 26, 2010
The annualised growth rate of the Westpac–Melbourne Institute Leading Index was 8.7 percent in March, well above its long term trend of 3 percent.
Data out today also reveals the annualised growth rate of the Coincident Index was 3.7 percent, above its long term trend of 3.2 percent.
Westpac Chief Economist Bill Evans says the growth rate in the Index – which indicates the likely pace of economic activity three to nine months into the future – is signalling better times for Australia.
“We concur that the growth momentum in the second half of 2010 is likely to exceed the first half with the annualised pace picking up from a 3 percent pace to 4 percent,” Evans says.
“While we do not use the Index to provide point estimates for growth it is safe to assume that the Index is signalling even faster growth in the second half of 2010 than our forecast,” he says.
The bank expects growth of 3.6 percent pa in GDP (for 2010/11) compared to Treasury's forecast in the Budget papers of 3.25 percent pa and the Reserve Bank's forecast of 3.5 percent.
“In 2011/12 which admittedly is beyond the range of the Leading Index, Westpac is forecasting growth of 3.4 percent pa compared to Treasury's forecast of 4 percent pa and the RBA's forecast of 3.75 percent pa,” Evans adds.
KEY GROWTH DRIVERS
Dominant contributors to the March growth pick up have been international factors, including: commodity prices (3 ppt's) and US industrial production (1.5 ppt's).
Corporate profits (0.9 ppt's); dwelling approvals (0.4 ppt's) and productivity (0.1 ppt's) also contributed to the increase.
On the downside, the all ordinaries index (-0.2 ppt's); real money supply (-0.1 ppt's) and overtime worked (-0.1 ppt's) were modest drags on growth.
‘CONSIDERABLE CORRECTION’ TO COME
Given today’s result reflects data up to March, Westpac warns the deterioration in global economic conditions in April and May will make a considerable correction to the Leading Index over the next few months.
The level of the Index increased by 2.4 points (0.9 percent) in March.
The all ordinaries Index was up by 5.1 percent; the real money supply by 1.2 percent; US industrial production by 0.2 percent while dwelling approvals surged by 15.3 percent.
The level of the Coincident Index increased by 0.6 points (0.2 percent).
Retail trade was up by 0.1 percent; employment by 0.3 percent while the unemployment rate was up by 0.1 percentage points.
The encouraging rise to above trend growth for the Coincident Index in February held in March but the gap failed to widen.
RATE UPDATE
According to Evans, there is “little chance” of a change in rates when the Reserve Bank Board next meets on June 1.
“We do not see any likelihood of a move in rates until August when the dominant issues will be inflation and global financial markets,” he says.