Index hints at fast recovery across Tasman

CANBERRA - A key pointer to future economic activity in Australia is indicating a sharp acceleration in growth next year, and a recovery that will outstrip official forecasts.

The annualised growth rate of the Westpac-Melbourne Institute leading index was 5.8 per cent in September, well above its long-term trend of 3.1 per cent.

The index, which indicates the likely pace of economic activity three to nine months ahead, has now accelerated from minus 5.4 per cent in May, marking the fastest turnaround since the economy bounced out of recession in the mid-1970s.

"This read represents an extraordinary pace of recovery," Westpac chief economist Bill Evans said, releasing the data yesterday. "The sharp recovery in the leading index's growth rate supports our view that the Australian economy is moving into a stronger growth trajectory in 2010."

Westpac is forecasting economic growth to pick up from 1.75 per cent in 2009 to 4 per cent in 2010.

That compares with the Reserve Bank of Australia's (RBA) more conservative forecast of 3.25 per cent in 2010 and a similar forecast from the Federal Government.

Evans expects the RBA will raise the cash rate again at its December 1 meeting, even though the central bank's November board minutes released on Tuesday hinted that it may be prepared to take a pause.

"Our view is that the data flow since the board meeting has been sufficiently strong to indicate that about 0.25 per cent hike is likely," he said.

- AAP