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Aust economy continues to falter - WBC/MI survey

27 May 2009 4:58 PM

SYDNEY, May 27 AAP - The Australian economy continues to falter due to the global economic downturn, a survey shows.

The Westpac/Melbourne Institute leading index of economic activity rose by a mere 0.3 per cent in March and was down 5.1 per cent over the year.

The annualised result was a slight improvement on the reading of minus six per cent recorded in February.

But the index, which indicates the likely pace of economic activity three to nine months into the future, remains below its positive long-term trend of 2.8 per cent.

"While the index continues to point to recessionary conditions in Australia there has been a slight improvement in March," Westpac senior economist Matthew Hassan said.

Mr Hassan said the slight improvement in the index from February marked the first substantive annualised rise since April 2008.

It was also consistent with other economic indicators suggesting the pace of contraction in the global economy was easing.

"That said, clearly the index is coming from an extremely weak starting point - the February read was the weakest read we've seen in the index since August 1982."

Mr Hassan said a recovery in the Australia economy, which recorded negative growth in the December quarter of 2008, was still a long way off.

"The index remains deep in recession territory, implying a likely further contraction in activity through the middle of 2009," he added.

"Even if we see similar improvements in the months ahead it will take three or four months for the index to return to levels consistent with positive growth, implying that a recovery in the real economy is unlikely before the December quarter [2009] at the earliest."

The Reserve Bank of Australia will hold its June boarding next Tuesday, with most market economists expecting it will leave interest rates unchanged for the second month in a row.

Westpac said the central bank was still likely to cut the cash rate, which stands at three per cent, over the next 12 months as the economic downturn impacts and unemployment rises.

Westpac sees a further cash rate reduction of one per cent by the end of 2009.