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AAP

2012-11-21

The Australian economy is expected to speed up in 2013, as the mining investment boom moves toward its peak.

The Westpac-Melbourne Institute Leading Index, released on Wednesday and which indicates the likely pace of economic activity three to nine months into the future, rose to 4.1 per cent in September, from 2.9 per cent the previous month.

However, Westpac's Coincident Index, which measures current economic activity, was 2.6 per cent, below its long-term average of 3.0 per cent.

Westpac chief economist Bill Evans said the Leading Index had now been above its long-term trend for two months. However, the bank's own view of the economic outlook was a little less optimistic, with a forecast of 3.5 per cent growth for 2013.

Mr Evans said the economy would continue to benefit from the mining investment boom in 2013, with spending in the sector expected to peak in 2014.

But, he said, the outlook for 2014 was less rosy and it was likely further interest rate cuts would be needed.

"The issue around growth will emerge through 2014 when mining investment is expected to be a drag on growth," he said.

"Without further rate cuts growth is likely to struggle to exceed 2.5 per cent in 2014."

The Reserve Bank of Australia (RBA) last cut the cash rate in October, to its current level of 3.25 per cent.

Westpac said the factors contributing to the growth improvement included manufacturing materials prices (up 1.2 percentage points), overtime worked (up 1.0 percentage points) and productivity (up 1.2 percentage points).