Australia Leading Index Signals Better Economic Growth

Australia Leading Index Signals Better Economic Growth


A leading indicator of Australia's economic activity rose at the fastest pace in almost a year in June, suggesting a moderate but improved economic growth in the second half of 2012 and into 2013, a survey by Westpac Institutional Bank and Melbourne Institute showed Wednesday.
The 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 2.4 percent in June, below its long term trend of 2.7 percent.
"While the growth rate of the Leading Index remains below long term trend an improvement is evident over recent months and the current pace is the fastest since August last year," Westpac Chief Economist Bill Evans said. "This suggests that, while moderate, growth in the second half of 2012 and into 2013 will adopt an improving tempo."
The annualised growth rate of the coincident index, which gives a pulse of current activity, was 3.7 percent. This was above the indicator's long term trend of 3.1 percent.
The level of the leading index increased to 284 in June from 282.6 in May. Three of the four monthly components, the share market, the real money supply and the U.S. industrial production, rose during the month.
Australia's gross domestic product jumped a seasonally adjusted 1.3 percent quarter-over-quarter in the first three months of 2012 following a 0.6 percent increase in the previous three months. The Australian Bureau of Statistics is expected to release the second quarter GDP data on September 5.
Evans said more robust growth outcomes for 2013 will require further interest rate relief, particularly given global fragilities and also given the strength of the Australian dollar at a time of weakening global commodity prices.
During the most recent monetary policy meeting, the Reserve Bank of Australia held its benchmark cash rate unchanged at 3.50 percent for a second consecutive time.
The RBA expects the economy to grow around trend pace over the medium term. In the latest quarterly Monetary Policy Statement published this month, the central bank said the economy would likely expand by an average 3.75 percent in 2012, faster than the 3 percent growth predicted in the May statement.
However, the bank warned that sustained gains in the currency could have a more contractionary effect on the economy than was the case in the past.



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