Abrupt slowdown on the
way
By AAP and
staff writers
May 28, 2008
10:46am
AUSTRALIA is
heading for an abrupt slowdown in economic growth, with business
expected to pull back investment, putting jobs at
risk.
The
Westpac-Melbourne Institute leading index of economic activity
released today shows the annualised growth rate was 3.3 per cent in
March, below its long-term trend growth rate of 4.4 per cent.
It was also the index's lowest reading since March 2004.
"The leading index continues to point to an abrupt slowdown in
economic activity," Westpac senior economist Matthew Hassan
said.
The index indicates the likely pace of economic activity three to
nine months into the future.
The index has more than halved since November last year when the
annual growth rate was 6.9 per cent.
"The index is now further below trend than at any other time in
nearly five years," Mr Hassan said.
Slowdown into next year
Mr Hassan said both indices are consistent with Westpac's view that
domestic demand has slowed and will continue to slow over the
remainder 2008 and into 2009.
The bank expects domestic spending growth to fall to 2.7 per cent
in 2008, from 5.7 per cent in 2007, and to 2.1 per cent in
2009.
Economic growth is expected to slow in the US, the world's biggest
economy, given a rapidly rising oil price, which will slow
economies around the globe, including Australia's.
Combined with rising interest rates, jobless queues are expected to
grow as employers cut bank on expenses, according to analysts.
Difficult year
for consumers
Consumers have been hit with a number of interest rates rises since
August last year that have contributed to a decline in sentiment
since the start of 2008.
The
Reserve Bank of Australia (RBA) lifted interest rates in February
and March in a bid to dampen demand growth and peg back
inflationary pressures.
The
official cash rate now stands at 7.25 per cent, its highest level
since July 1996.
"With
rising fuel and food costs squeezing household budgets as well,
2008 is shaping up as a difficult year for consumers, even with
$7.1 billion in tax cuts rolling out in July," Mr Hassan
said.
ANZ
Banking Group Ltd has forecast the RBA to lift official interest
rates by two times in the second half of 2008, in August and
November.
Westpac
expects the RBA will leave interest rates on hold following its
board meeting next week.
"Although it will be
concerned by some of the data out over the last month – a sharp
rise in inflation expectations in particular – we expect the bank
to again leave the cash rate on hold in June," Mr Hassan
said.
"It will
still be nervous but with a slowdown now clearly underway,
signalled again with the March leading index, we expect the bank to
continue giving the benefit of the doubt to a continued slowdown in
demand eventually bringing inflation back below three per
cent."
Mr
Hassan said business investment was under pressure. "The minerals
boom will continue to run ahead as fast as capacity constraints
will allow, but the prospect of slower demand domestically and the
more difficult post credit crunch funding environment will see new
capital spending slow sharply in other sectors," he
said.
