A survey shows the Australian economy is set to record below trend growth and into 2009
The Westpac - Melbourne Institute(WMI) leading index has found Australia's annualised growth rate was 2.1 per cent in May. This was well below the long-term trend of 3.9 per cent.
The index that measures the likely pace of three to nine months economic activity into the future has fallen 6.5 per cent from six months ago.
Since the introduction of the GST, in February 2001 this is the sharpest drop in the growth rate
Bill Evans from Westpac said the result was consistent with the prospect of the economy slowing further through 2008 and into 2009.
The economies performance for the next 18 months commencing April 1995 was the best indicator of what was expected from the economy.
Between August and December 1994 the official cash rate was simply lifted by 275 basis points. This induced a sharp slow down
Today's growth outlook is very similar
Spending growth in the economy will slow it down substantially through 2008 and 2009.
The RBA has lifted rates between the start of August last year and March to a 12 month high of 7,25 per cent. Westpac's forecast was of domestic spending growth slowing to 2.4 per cent in 2008, before easing further to 2.1 per cent in 2009.
The slowdown is consistent with RBA own forecast and indicates no need to increase rates.
The RBA looks like continuing with a policy of keeping rates on hold for an extended period
Along the lines of the RBA recent forecast evidence points to the economy slowing.
In its quarterly monetary policy statement the underlying inflation was expected to be 4.25 per cent by June and 4.11 per cent by December.