Economic Woes Set To Continue

April 20, 2012 Updated: April 20, 2012

The Australian economy is on track to record it’s fifth consecutive year of below trend growth, according to a Westpac Bank industry study.

The Westpac-Melbourne Institute leading index, which gives an estimated pace of economic activity for the next three to nine months, released this week bore bad news. In February, the Leading index measured in at 2.4 per cent annual growth—below its long-term trend of 2.9 per cent. It was the sixth consecutive month of below trend growth for the index.

“The growth rate has picked up somewhat from the absolute low in November last year,” Westpac Chief Economist, Bill Evans said in the study, “but the modest decline in February does not encourage too much optimism that growth is likely to exceed trend any time soon.”

Mr. Evans highlighted the alignment between the results of the index and Westpac’s forecast of 3 per cent growth this year, which is pushing Australia to post its fifth consecutive year of below trend growth.

The index monthly components revealed a searing weakness in the Australian economy—the housing sector. Dwelling approvals in February suffered a contraction of 7.8%, whereas all other monthly components remained relatively benign.

With the Reserve Bank set to meet on May 1, Mr. Evans believes that given the sluggish growth, multi-speed nature of the economy and the imminent fiscal tightening in the upcoming Federal Budget, Australia’s central bank -the RBA has been given ‘adequate scope’ to hit the accelerator on the economy and cut interest rates.