Wednesday August 22, 05:28 AM
Australian economy poised for strong growth, index predicts
SYDNEY (AFP) - The Australian economy is set for strong growth in 2007 and 2008 as household spending remains robust and resource exports continue to boom, according to a survey released Wednesday.
The Westpac-Melbourne Institute leading index, which indicates the likely pace of economic activity three to nine months into the future, was 7.1 percent in June, well above its long-term trend of 4.5 percent.
Westpac chief equities economist Bill Evans said a number of factors were pointing to growth of 4.0-4.5 percent in both 2007 and 2008.
"A strong labour market, rising real wages and tax cuts will support household spending," he said.
"Five years of solid investment growth are now beginning to pay off for the resources industry with exports of resources gathering pace.
"Prospects for business investment remain strong - high business confidence, healthy balance sheets and high profits are all pointing to a continuation of buoyant investment conditions."
Evans (EVAN.PK - news) said the Reserve Bank would be closely monitoring developments on global capital markets to see if fallout from the credit crunch in the US subprime mortgage markets warranted policy action.
But he predicted the central bank would not move on interest rates until the end of the year as it waits to see the impact of this months 0.25 point rise to 6.5 percent.
"Westpac has been forecasting that the next rate increase will be in December," Evans said.
"The timing of any move now depends on the developments in global capital markets and associated implications for global growth -- those prospects will become much clearer over the next few months as central banks inject vast amounts of liquidity into the financial system to settle the current turmoil."
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