Forecast growth ‘moderates’ to 7.6 percent

The Westpac–Melbourne Institute Leading Index, which forecasts the likely pace of economic activity three to nine months into the future, delivered an annualised growth rate of 7.6 percent for April.

Westpac Melbourne Institute RBA The Westpac-Melbourne Institute Leading Index at 7.6 percent for April, was significantly above the long term trend for the index at 3 percent. In addition the annualised growth rate of the Coincident Index recorded a 3.9 percent growth, also above its long term trend average of of 3.2 percent.

Westpac Senior Economist, Matthew Hassan feels that while growth is still strong at 7.6 percent, the economy is coming off the boil again as international developments put the brakes on the Australian recovery from the GFC.

“Although the growth rate in the Index remained very strong in April, the month did see a moderation from 8.8% in March, a 12½ year high, to 7.6% in April. This is the first slowing after ten consecutive months of sharp acceleration – the year to March saw the sharpest upturn in the Leading index since the rebound coming out of the early 80s recession.”

Mr Hassan expects the slow down in forecast growth to be reflected when the Reserve Bank of Australia meets to set official interest rates in July and August. With the RBA tipped not to increase rates until August after official Australian CPI (inflation) data comes out in late July.

“The Reserve Bank Board next meets on July 6. It’s likely to leave rates on hold again. The minutes of the June 1 meeting showed the decision to pause then was mainly based on concerns about the deteriorating situation in Europe and uncertainty over potential spill-over effects via financial markets. The Board viewed its earlier rate rises as giving it enough flexibility to wait for more information on both external developments and the inflation front. With financial markets still unsettled and the next CPI release not due until July 28, August 3 looks to be the next ‘live’ Board meeting. The dominant issues for that decision will again be inflation and global financial markets”, Mr Hassan said.

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