European crisis cools growth forecast

SYDNEY: Australia's economic outlook remains buoyant but concerns about the impact of the European debt crisis on the global economy has lowered expectations for economic growth, a report says.

The Melbourne Institute monthly bulletin of economic trends for May indicated a drop in the optimism in the outlook for the Australian economy compared with April. "Our opinion on the health of the Australian economy remains unchanged," said the report, released yesterday.

Melbourne Institute research fellow Michael Chua said the local economy was still strengthening. But worries about the health of the euro-zone economy has raised concerns about its possible effect on the world economic recovery, he says.

"Troublesome developments have caused us to be concerned about the likely pace of growth [in the economy]," Chua said.

He said several key economic indicators suggested a slowdown in the local economy later in 2010.

"First, the 7.0 per cent fall in the Westpac-Melbourne Institute consumer sentiment index (in May) signals a cautious attitude in spending for the coming months," Chua said.

"Second, the 8.5 per cent rise in the Westpac-Melbourne Institute unemployment expectations index (in May) points to increased perception that jobs might not be readily available."

Australia's economy expanded 0.9 per cent in the December quarter for an annual rate of 2.7 per cent, according to official data.

The Melbourne Institute forecast gross domestic product to grow 0.8 per cent for the March quarter and 0.7 per cent in the following quarter, with 0.6 per cent quarterly growth for the second half of 2010.

- AAP