The pace of economic activity is likely to slow over the next three to nine months, largely as a result of the flooding in Queensland and other natural disasters, Westpac has warned.
The company also revealed it does not expect the Reserve Bank to increase rates before the September quarter at the earliest.
The Westpac-Melbourne Institute Leading Index, a measure of the likely pace of economic activity over the next three to nine months, fell to 3.5% in January.
This is a decline from the 4.6% recorded in December and the historic 9% growth rates from early last year. But Westpac said the figure was still slightly above the long-term trend of 3.3%.
Westpac Senior economist Matthew Hassan said to expect volatility in the coming months as the initial impact of the Queensland floods fades, but other extreme weather events – including Cyclone Yasi and last week’s huge earthquake in Japan – start to make their effects felt.
“This will make getting a read on underlying economic trends more difficult than normal,” he said.
I think this slow down in our economy should be seen as a healthy sign where we take a breather from the extraordinary growth of the last couple of years. It will allow the RBA to hold off further interest rate rises for a while and allow some fundamentals to get back into equilibrium. Lulls in the market allow investors with a long term perspective to take advantage of countercyclical opportunities.
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