Australian economy expects growth in 2006

SYDNEY - Australia's pace of economic growth is expected to edge up in 2006 as increased mining capacity and global commodity demand increase, an index has found.

The annualised growth rate of the Westpac-Melbourne Institute leading index of economic activity -- which indicates the likely pace of economic activity three to nine months into the future -- was 4.4 per cent in November, above its long-term trend of 3.8 per cent.

The annualised growth rate of the coincident index was 2.9 per cent in November, below its long-term trend of 3.5 per cent.

Westpac chief economist Bill Evans said the annualised growth rate of the index had picked up solidly in the last two months to be comfortably above the long term trend.

"That is pointing to an improving growth outlook in 2006," Mr Evans said.

"However, the pattern of the growth rate of the index in 2005 signals caution."

He said the peak in the growth rate earlier in 2005 was well below previous peaks with growth slumping below trend for two months.

"A repeat of that pattern would imply a continuation in 2006 of the patchy growth profile we saw in 2005," Mr Evans said.

While Westpac expects growth in 2006 to reach three per cent compared with only 2.5 per cent in 2005, an improvement relies on a strong recovery in export growth from 2005.

"Increased mining capacity and strong global demand for our commodities gives us some confidence that such growth improvement can be achieved," Mr Evans said.

"Nevertheless, the surprising slowdown in export growth between 2004 and 2005 remains a concern."

The level of the leading index rose 1.3 points -- 0.6 per cent -- in November.

Three out of the four monthly components of the leading index increased in November.

Meanwhile, growth in the coincident index has now been below trend for three consecutive months.

- AAP