FED:Economy faces cooling off period

AAP General News (Australia)
12-22-2010
FED:Economy faces cooling off period

CANBERRA, Dec 22 AAP - The economy looks set for a cooling off period in the early
months of 2011 from what looked like an unsustainably strong growth rate earlier this
year, new data suggests.

The annualised growth rate Westpac-Melbourne Institute's leading index released on
Wednesday was 4.1 per cent in October, just above its long term trend of 3.3 per cent.

The index, which indicates the likely pace of economic activity three to nine months
into the future, has abruptly slowed from a peak of 9.7 per cent in March.

"The rapid deceleration ... is somewhat disconcerting," Westpac senior economist Matthew
Hassan said releasing the data.

"But so far it implies a cooling off from unsustainably strong growth rates to a more
moderate pace of expansion rather than outright weakness."

Its coincident index, which gauges current activity, also points to a patchier economic
performance with growth momentum moving below trend for the first time since December
2009.

This index showed an annualised growth rate of 3.1 per cent in October, below a long
term trend of 3.5 per cent.

Among the components dragging the leading index lower in the past six months have been
a 1.2 percentage points fall in overtime worked, a one percentage point decline in corporate
profits, and productivity growth and commodity prices both easing 0.9 percentage points.

Mr Hassan said interest rate decisions by the Reserve Bank this year have been successful
in reining in the unsustainably strong burst of growth earlier in the year.

"Although the (Reserve Bank) is more interested in what lies ahead, it will clearly
be more comfortable with a starting point of moderate growth rather than broad-based strength,"

Mr Hassan said.

Westpac believes the Reserve Bank will leave the cash rate unchanged at 4.75 per cent
when its board next meets on February 1 as it continues to assess the impact of its November
increase.

AAP cb/sb/maur

KEYWORD: ECONOMY

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