Australia's July Westpac leading indicator up annualized 6.4 pct

The Westpac-Melbourne Institute leading index of economic activity, which indicates the likely pace of economic activity three to nine months into the future, rose at annualized rate of 6.4 pct in July following a 5.3 pct annualized rise in June, Westpac Banking Corp said.
It said the leading index remains above its long-term trend of 4.1 pct annualized growth.
On a monthly basis Westpac said the index rose 1.9 points in July or 0.8 pct after a 1.8 point rise in June from May.
But the annualized growth rate of the coincident index, which measures current activity, was below its long-term trend of 3.2 pct at 2.8 pct in July after an annualized rate of 3.3 pct in June.
On a monthly basis the coincident index rose 1.2 point or 0.5 pct in July after rising 1.1 points in June from May.
Westpac chief economist Bill Evans noted the growth rate of the leading index has now reached its highest level since February 2000.
"It indicates that growth over the next three to nine months will be well above trend, although the economy will have to deal with the lag effect of the interest rate increases in both May and August," he said.
The Reserve Bank of Australia raised official cash rates by 25 basis points in May to 5.75 pct after keeping interest rates on-hold since March 2005.
The central bank followed up the May interest rate hike by raising cash rates a further 25 basis points in August, citing ongoing inflationary concerns.
Westpac's Evans said the apparent weakness of the economy, as indicated by the June
quarter national accounts where growth slowed to a pace of 0.3 pct, is likely to rebound in the second half of 2006.
He said his firm expect Australia's economy to grow around 4-5 pct in the second half of 2006, driven by a much improved export profile, as well as a significant contribution from a recovery in the residential building cycle which will likely spill over into a stronger performance from the consumer than we saw in the June quarter.
Evans added the leading index is providing a strong signal for the economy out to the March quarter of 2007.
However, he said, beyond that his firm expect the Australian economy to cool.
Meanwhile, the chief economist said the main concern of the RBA when it next meets on Oct 3 will likely be it has been underestimating inflationary pressures given underlying inflation was running well ahead of its comfort level in the first half of 2006.
He said the September quarter inflation data due on Oct 25 will be crucial to the bank's outlook, with any confirmation from the CPI data that inflation continues to run at an uncomfortably fast pace will see a quick policy response from the RBA.
But, Evans said, "an unexpected slowdown in inflation will, given the weak national accounts, provide the RBA with room to watch, wait and worry for a bit longer. We expect that the odds are still stacked in favour of a November move."
The chief economist said that given his firms leading index indicates growth in the second half of 2006 is set to accelerate, a rate increase will be necessary to contain inflation pressures.