Leading indicator signals economic bounce in sight

A measure of economic growth improved sharply in June, signalling that Australia may be through the worst of the economic downturn.

The annualised growth rate of the Westpac-Melbourne Institute leading index of economic activity was -3.3 per cent in June.

This was an improvement from -5.3 per cent in May and the best annualised rate in seven months.

“This, combined with the spectacular rebound in the Westpac-Melbourne Institute consumer sentiment index, may be signs that the economic rebound is in sight,” the report said.

The leading index predicts the likely pace of economic activity three to nine months into the future.

Westpac chief economist Bill Evans said the pace of contraction of the leading index was easing considerably. “Clearly the low point in the outlook for growth has been reached and steady improvement can be expected from here,” Evans said.

Westpac expects the local economy to post year average growth of 0.2 per cent in 2009 and 1.8 per cent in 2010.

Evans said the surge in business and consumer confidence placed “considerable upside to these numbers”.

“But the new dimension of a Reserve Bank that appears to be signalling plans to raise interest rates must temper the outlook,” Evans said.

“The resilience of confidence to the prospect of higher rates will be a key determinant of the growth outlook.”

Three of the four components that make up the leading index were higher in June.

– AAP