Economy set for below trend growth

Thursday, 21 Jun 2012

Turbulent times could be ahead for the economy, as the latest Westpac-Melbourne Institute Leading Index predicts below trend growth over the coming months.

The index, which predicts the pace of economic activity between three and nine months in the future, stood at 0.2 per cent in April, below the long-term trend of 2.6 per cent.

Senior economist at Westpac Matthew Hassan said: "The leading index is pointing to a sharp slowdown over the second half of this year.

"Although the growth rate in the Index has improved from the very weak -1.5 per cent read in February, at 0.2 per cent it remains significantly below its trend rate of 2.6 per cent."

At the next Reserve Bank meeting, Westpac anticipates a further cut to the cash rate and that future decisions will need to be "finely balanced".

This is in contrast to comments made by secretary to the treasury Martin Parkinson at CEDA State of the Nation 2012, where he suggested that the economy is set to grow at a rate that is close to trend.

He highlighted that the country is enjoying solid growth at a time when many other developed nations are experiencing difficulties.