AAP Finance

Outlook soft despite ASX, commodity boost

By AAP Newswire

Commodities strength, a share market rally and an improving housing market have boosted growth prospects, according to the June Westpac-Melbourne Institute Leading Index, but the nation's near-term outlook remains subdued.

The index, which indicates the likely pace of economic activity relative to trend over the next three to nine months, recorded a gain during an otherwise volatile month, rising from -0.47 per cent in May to -0.02 per cent in June.

However, the index is in negative territory for a sixth successive month and, according to economists, continues to suggest the Australian economy will grow at a below-trend rate in the near future.

Westpac chief economist Bill Evans said high commodity prices, a continued share market rally and a reduced drag from housing explained the monthly improvement, which was partly offset by deteriorating consumer confidence both overall and in the jobs market.

"With this big monthly turnaround, the Leading Index growth rate has lifted over the last six months from -0.36 per cent in January to the current -0.02 per cent," Mr Evans said on Wednesday.

The monthly report says the failure of the June interest rate cut to boost consumer sentiment suggests weak household consumption and soft output growth may persist.

The share market again made the largest contribution to growth, adding 0.43 basis points after the ASX 200 increased by 3.5 per cent in June.

Commodity prices contributed 0.31 bps to growth, a step up from May.

Westpac said the Reserve Bank of Australia's July board minutes indicated it was likely to pause next month in its current easing cycle following two 0.25 basis point cuts in June and July that put the cash rate at a record-low 1.0 per cent.

Westpac continues to expect a further 25bp rate cut, coinciding with a downgrade to the RBA's growth and inflation forecasts in November.

"By then it will also be clear to the Bank that it has made little progress in its objective of a significant reduction in the unemployment rate," Mr Evans said.