Economic growth in the second half of 2009 will be `tepid’, but looks set for a brighter future in 2010, a private sector survey has found.

The annualised growth rate of the Westpac-Melbourne Institute leading index of economic activity, which indicates the likely pace of activity three to nine months in the future, was minus-1.8 per cent in July.

That was an improvement from the reading of minus-3.3 per cent in June and minus-seven per cent in May.

But the index remains well below its long term trend of 2.5 per cent, the survey released on Wednesday found.

Westpac Economist Bill Evans said while the index had improved since May, the still weak readings for mid-2009 were broadly consistent with the bank’s view that economic growth in the second half of this year will be “tepid”.

“We are expecting the annual growth pace to slow from two per cent in the first half to around one per cent in the second half,” he said in a statement.

“However, the pace of improvement in the growth rate of the leading index and, indeed the level of the index, points to a significant improvement in growth prospects in 2010.”

Westpac is forecasting economic growth to rise from 1.4 per cent through 2009 to 3.8 per cent through 2010.

Meanwhile, the survey’s annualised growth rate of the coincident index was minus-0.2 per cent in July, also well below its long term trend of 2.9 per cent.

Mr Evans noted the coincident index was essentially unchanged from June, and was indicating a soft outcome for growth in the September quarter.

Westpac is currently forecasting growth in the September
quarter of only 0.2 per cent.

The economy grew by 0.6 per cent in June quarter, the most recent data from the Australian Bureau od Statistics show.

Mr Evans said slowing growth means the Reserve Bank of Australia was not likely to lift the cash interest rate until February at the earliest.

“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,” Mr Evans said.

The minutes of the central bank’s September 1 board meeting, released on Tuesday, indicated the bank was actively discussing when to lift the cash rate from its current level of three per cent.

Mr Evans said a rate hike in October was “very unlikely”.

Meanwhile, all four monthly components of the leading index increased in July - with share prices up 7.3 per cent, dwelling approvals up 7.7 per cent, real money supply up 0.3 per cent and US industrial production up 0.5 per cent.

AAP