Australian economic growth is expected to accelerate this year to levels last experienced at the peak of the resources boom in 2007, according to a leading private sector index.

The Westpac-Melbourne Institute leading index of economic activity, which indicates the likely pace of activity three to nine months into the future, posted an annualised growth rate of 6.2 per cent in December.

The result, released on Wednesday, was above the long-term trend growth rate of 2.7 per cent.

Westpac senior economist Matthew Hassan said the annualised growth rate of the leading index continued to recover after bottoming at minus 6.9 per cent in May 2009.

“This large swing is not only the fastest reversal since the economy bounced out of recession in the mid 1970s but also puts the growth outlook back on a par with that seen in 2007 at the height of Australia’s resources boom,” Mr Hassan said in a statement.

The turnaround had been broadly based with only one component of the index declining, Mr Hassan said.

“Three of the four monthly components of the index rose in December - the share price index (up by 3.6 per cent); dwelling approvals (up by 2.2 per cent) and US industrial production (up by 0.6 per cent),” he said.

“One monthly component - the real money supply - fell by 0.9 per cent.”

The annualised growth rate of the coincident index, which shows the current pace of economic activity, was 1.3 per cent, below its long-term trend of three per cent.

Australia’s economy grew by 0.5 per cent in the year to September 2009, latest official data showed.

Mr Hassan said strong data released recently could nudge the Reserve Bank of Australia (RBA) to lift the cash rate at its next board meeting on March 2.

In January, the domestic economy added 52,700 jobs, while the unemployment rate fell 0.2 percentage points to a 11-month low of 5.3 per cent, official data showed on February 11.

The RBA surprised financial markets earlier this month after leaving the cash rate unchanged at 3.75 per cent.

Most market economists had expected a 25 basis point rise to 4.0 per cent.

“Data releases since the February meeting, including another surprisingly strong jobs report last week and today’s Leading Index result, continue to show a faster than expected upturn in growth domestically,” he said.

“The (Reserve) Bank has shifted to a slower pace of tightening and is now keeping its options more open.

“Decisions are likely to remain finely balanced but our central case is still for another 25 basis point rise in March.”

AAP