A leading indicator for Australia's economic activity suggested that the economic growth may improve in the second half of this year, though the index currently remained below its long-term trend.
The Westpac-Melbourne Institute Leading Index, published Wednesday, was at 1.6 percent in May, below its long term trend of 2.6 percent. The leading index shows the likely pace of economic activity three to nine months into the future.
Westpac Chief Economist Bill Evans said, "While the growth rate remains well below long term trend, it is the fastest since September last year and is indicating 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 4.2 percent, well above its long term trend of 3.1 percent.
The Reserve Bank of Australia cut the benchmark cash rate in May and June to support economic activity, but left it unchanged in July.
According to the July meeting minutes, the members of the RBA monetary policy board felt that there was no need to change its key interest rate. The board members said the Australian economy was continuing to gather momentum for the past year, although there remained significant downside risk from the European crisis.
Westpac's Evans said that the Board is in a "wait and see" mode. Another rate cut is not expected until the December quarter, Evans said.
Two of the four monthly components of the leading index, real money supply and dwelling approvals, increased in May. For the coincident index, out of the three components, retail trade and employment contributed positively. Unemployment had a negative impact on the coincident index.
by RTT Staff Writer
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