The outlook for economic growth has improved although it is still below average.
The Westpac/Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was 2.2 per cent in March, well below its long-term trend of 2.9 per cent.
Westpac chief economist Bill Evans said an improvement in the performance of the share market in March and a higher number of home building approvals helped optimism.
“The growth rate has picked up somewhat from the absolute low in November last year, but the level in March does not encourage too much optimism that growth is likely to exceed trend any time soon,” Mr Evans said.
“That profile is consistent with Westpac’s forecast for growth in the Australian economy in 2012 of three per cent, which would mean that Australia had grown below trend for five consecutive years.”
Mr Evans said he expected the Reserve Bank of Australia (RBA) to cut the cash by 0.5 percentage points over the course of the next three months, taking it to 3.25 per cent.
This type of cut would be on top of the 50-basis point, or 0.5 percentage point, reduction announced after the RBA’s May board meeting.
“Despite the 0.5 per cent cut in the official cash rate in May, monetary policy settings are still only in the `mildly stimulatory’ range,” Mr Evans said.
“Since that last decision, the (government debt) situation in Europe has deteriorated markedly.”
The annualised coincident index, which indicates current economic activity, is 3.1 per cent, above its long-term trend of 3.0 per cent, the report said.