It’s looking more likely that the Australian economy will grow at a sluggish pace in 2014.
The Westpac/Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, fell for a second month in a row in February. It was down 0.72 percentage points to -0.09 per cent, indicating below trend economic growth.
Westpac senior economist Matthew Hassan said the economy struggled to sustain momentum in the past year or so.
“Although conditions have improved since June, today’s Leading Index result points to a loss of momentum heading into mid-2014,” he said.
“That is consistent with Westpac’s view that gross domestic product growth (GDP) remains sluggish at 2.7 per cent in 2014.”
Mr Hassan said the index had been losing ground since October as the outlook for consumer sentiment and unemployment expectations worsens.
“Declining commodity prices and hours worked have also contributed to the slowdown,” he said.
Mr Hassan does not expect the Reserve Bank of Australia to cut the cash rate in the foreseeable future after reducing it to a new record low of 2.5 per cent last August.
Westpac previously forecast a quarter of a percentage point cash rate reduction in August and another in November.
“This decision was partly made because of the considerable comfort that the Board holds with the current policy stance,” Mr Hassan said.
“That was clear in the minutes to the RBA’s March Board meeting released yesterday with the Bank pointing to gradual improvement in the economy; and expectations that growth in 2015 will be a little above trend and inflation contained within the two to three per cent band.”