More evidence of Australia's slowing economy

By Victoria Batchelor

SYDNEY - An index of leading economic indicators for Australia declined to a four-month low in January, adding to signs that growth is slowing in the Asia-Pacific region’s fifth-largest economy.

The index, a gauge of growth for the next six months, fell 0.3 per cent to 211.1, the lowest since September, Westpac and Melbourne Institute said in a report released in Sydney yesterday. The index tracks nine signs of economic activity, such as share prices and phone installations.

A drop in the index suggests the Reserve Bank of Australia will refrain from increasing interest rates for a second consecutive month in April, economist Bill Evans said. The central bank raised its overnight cash rate target a quarter percentage point to 5.5 per cent, a four-year high, on March 2.

"Evidence that we can expect the economy to underperform in the second half of 2005 may prompt the bank to keep policy on hold, rather than raising rates again," said Evans, Westpac’s global head of economics.

The A$798 billion economy grew 0.1 per cent in the fourth quarter from the previous three months, the slowest pace in four years, as companies’ stockpiles declined and home building fell.

The index’s decline in January was driven by a drop in the number of overtime hours worked.

The annualised growth rate of the index was 2.2 per cent in January, less than its long-term trend of 3.5 per cent, suggesting economic growth will cool.

Among other signs of a slow-down, consumer confidence had a record decline in March, a report by Westpac last week showed. Business sentiment fell in February as companies said they had fewer new orders, a survey by National Australia Bank last week showed.



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