Australia's Leading Index Growth Moves Above Trend: Westpac-MI

Australia's Leading Index Growth Moves Above Trend: Westpac-MI


A leading indicator of Australia's economic activity rose at a faster pace than its long-term trend in August, for the first time in a year, a survey by Westpac and the Melbourne Institute revealed Wednesday.
The annualised growth rate in the Westpac-Melbourne Institute leading index, which indicates the likely pace of economic activity three to nine months into the future, was 3 percent in August, just above its long term trend of 2.7 percent.
This is the first month since August last year that growth in the index has been above trend, Westpac Chief Economist Bill Evans said. However, "Westpac is a little less optimistic than the index at this stage with our expectation that growth in the second half of 2012 will be around 2.5 percent, slightly below trend."
The annualised growth rate of the coincident index, which gives a pulse of current activity, was 2.7 percent, below its long term trend of 3 percent.
Evans said the economy will be benefiting from a surge in mining investment next year although the firm expects the spending peak to be around year-end or early in 2014.
The level of the leading index increased 0.5 percent to 286 in August from 284.7 in July. The monthly components of the index were generally positive. The all ordinaries index and dwelling approvals increased, while US industrial production declined.
Westpac expects the Reserve Bank of Australia to cut the overnight cash rate by a further 0.25 percent when it next meets on November 6, amid global uncertainty, softening domestic growth, a weak labour market and dormant inflation.
At the October meeting, the RBA trimmed the cash rate by 25 basis points to 3.25 percent. The move followed a 50-basis point cut in May and a 25-basis point reduction in June, which came after two consecutive rate cuts towards the end of last year.