By Grant Shepherd
A 6.7 per cent annualised growth rate has been recorded in the latest Westpac-Melbourne Institute Leading Index for October. This is an impressive result seeing as the index was at -5.3 per cent in May.
The Leading Index indicates the likely pace of economic activity three to nine months into the future. Westpac chief economist, Bill Evans commented on the result.
"We continue to be surprised by the pace of recovery in the growth rate of the Leading Index. Over the last six months, growth has accelerated from –5.3 per cent in May to the current 6.7 per cent,” he said.
“As discussed last month this rapid turnaround represents the fastest reversal in the growth rate of the Leading Index since the economy bounced out of recession in the mid 1970s.”
Evans highlighted that the recovery has been in line with Westpac’s expectations.
“This sharp recovery in the growth rate is consistent with Westpac’s view of the economic outlook. In through the year terms we expect the growth rate of domestic demand to bounce back from around one per cent in 2009 to 4.5 per cent in 2010,” he said.
“That will be supported by much stronger momentum in consumer spending; dwelling construction and business investment. The recovery in GDP growth will be more subdued (two per cent to around 3.25 per cent) as the major supporters of growth in 2009 – inventories; government spending and net exports begin to fade in 2010.”
Evans expects that the Reserve Bank will once again raise interest rates by 25 basis points when it next meets in February.