The pace of Australia's economic growth is expected to pick up over the next few months, increasing the chances of another mortgage home loan interest rate rise this year, a survey reveals.
The Westpac-Melbourne Institute's leading index of economic activity, which indicates the likely pace of activity three to nine months from now, was rose 0.7 index points in August bringing the annualised rate of growth to 6.1 per cent, compared to 6.5 per cent in July.
Despite the moderation, the result was well above the index's long term trend of 4.1 per cent.
Westpac chief economist Bill Evans said the leading index pointed to strong growth in the economy over the next few months.
"The Reserve Bank has also alluded to surprising strength in tax receipts, which is also pointing to a stronger economy than depicted by the official national accounts that measured the pace of growth over the year to June 2006 as an insipid two per cent."
Mr Evans expects the central bank will lift the official rate by a quarter of a percentage point to 6.25 per cent following a board meeting on November 7.
Mr Evans said growth in the coincident index was being underpinned by rising employment. "Growth in the index has now almost returned to trend following a weak first half of 2006," he said.
"This is pointing to better growth conditions in the second half of 2006. Employment continues to be the real driver of the index."
Mr Evans also forecast economic growth in the second half of this year to pick up to around four per cent, as net exports add to growth for the first time in 19 quarters.
But as non-farm inventories are rebuilt, farm inventories will be drawn down and farm production will fall due to the current drought.
"The impact on growth from the drought could be as severe as 2002/03 when growth was reduced by around one per cent," Mr Evans said.
The index also showed that half of the four monthly components increased in August. Share prices grew by 2.6 per cent while real money supply gained by 0.9 per cent.
However, this was partly offset by a 12.6 per cent drop in dwelling approvals and US industrial production fell by 0.1 per cent.
Three out of the four quarterly components also increased. Overtime worked, core manufacturing material prices, and real corporate gross operating surpluses increased, while the productivity measure declined.
The growth rate of the coincident index, which provides information on a weighted average of six economic series that are typically coincident with economic activity, rose 0.7 index points in August to an annualised 3.1 per cent from 2.8 per cent in June.
Source: AAP
