Leading indicator shows economy flagging

Australian money one hundred dollar note in red white and blue piggy bank with Australian flag for 30th June End of Financial Year Australian economy or savings concept.

Sydney

(Australian Associated Press)

Australia is facing a period of slow economic growth likely to stretch into next year but that will not necessarily prompt another interest rate cut.

The Westpac-Melbourne Institute leading index of economic activity fell in August, taking it further below its trend growth rate and, according to Westpac’s chief economist Bill Evans, suggesting the economy was losing momentum.

The latest results were a marked change from the first four months of the year, when the index was pointing to above-trend economic growth.

“Today’s print points to a likely below trend start to next year,” Mr Evans said in a commentary on the data released on Wednesday.

An important reason for the sharp slowdown in economic growth rate implied by the index was the recent sell-off in the share market.

Despite the bleak signals from the index, Mr Evans said there was little chance that the Reserve Bank of Australia might cut interest rates at its next policy meeting on October 6 to stimulate the economy.

That’s because the RBA still probably expects that the unemployment rate has stabilised, despite the sluggish economic growth that might normally push unemployment up.

“A particularly important point here is that the make-up of growth seems to be more `jobs intensive than we may have expected, with the lift from dwelling construction, household expenditure and net services exports being particularly important,” Mr Evans said.

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