The Australian economy continues to shows signs of a solid recovery with a leading index of economic activity showing strong improvement in July.
The Westpac-Melbourne Institute index of economic activity contracted at an annualised rate of 1.8% in July compared with a contraction of 4.6% in June. The index attempts to point to where the economy is likely headed in the next three to nine months.
A coincident index, which is a broad measure of current economic activity, contracted at an annualised rate of 0.2% in July. "The indexes suggest that current economic activity is still sluggish but a solid rebound in growth seems imminent," Westpac said.However, Bill Evans, chief economist at Westpac, said that the RBA is likely to sit on the sidelines until February, as growth through the second half of 2009 remains sluggish.
"The growth momentum, as implied by the leading index, will remain tepid through 2009 with a likely solid rise in the unemployment rate. Of course, policy should be set with the future in mind but we do not expect that future growth signals will be sufficiently robust for the bank to see the need to move before next February," he said.