Australia’s economy will lose momentum later in the year, not helped by a fall in consumer confidence after May’s tough federal budget.
The Westpac/Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, rose in May but is still at a level low enough to indicate a below-trend rate of economic activity in the second half of the year and into 2015.
Westpac senior economist Matthew Hassan said the local economy is suffering a number of challenges.
He listed: “The sustained high Australian dollar in the face of falling commodity prices, the sharp fall in consumer sentiment since May and signs of slowing in consumer spending and housing markets”.
“This month’s Leading Index highlights just how much these and other shifts have affected growth momentum with a slowdown likely over the remainder of 2014 and early 2015.”
Mr Hassan said the potential slowdown in economic growth wouldn’t be enough for the Reserve Bank of Australia to chance its stance of keeping the cash rate unchanged for some time to come.
“We expect the bank to again leave rates on hold at its July meeting and through the remainder of 2014 and the first half of 2015,” he said.
The minutes of the RBA’s board June meeting said there were “uncertainties” over what impact the tough federal budget and expected declines in mining investment would have on the economy.
Westpac’s Leading index rose by 0.37 percentage point in May to 0.75 per cent.