February cut tipped for Australia

SYDNEY - The outlook for economic growth has fallen back below trend, although the pace of current activity is still strong, a survey shows.

The Westpac/Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was 2.6 per cent in September, below its long-term trend of 3 per cent.

This contrasted with the annualised growth rate of the Coincident Index - which indicates current activity - which was 3.5 per cent, above its long-term trend of 3.2 per cent.

The level of the index of economic activity rose 0.4 of a point (up 0.1 per cent) in October.

Westpac chief economist Bill Evans said the figures were consistent with the bank's predictions of slightly below-trend growth next year.

"It appears that the boost to above trend growth that we saw in July and August has quickly faded," he said.

"The 'around trend' story which has been generally the case since the beginning of 2011 is now appropriate."

Those surveyed were also expecting a two-speed economy, with strong corporate profits and productivity contributing to economic growth, while manufacturing prices and dwelling approvals would be a drag.

The Reserve Bank of Australia cut the cash rate by 25 basis points to 4.25 per cent at its December meeting.

"With prospects for Europe steadily deteriorating and the interest rate sensitive parts of the economy remaining weak, we believe there is ample scope for a further rate cut in February," Evans said.

AAP