The Australian economy is expected to continue growing strongly, on par with previous cyclical highs experienced during the resources boom.

The Westpac-Melbourne Institute leading index of economic activity, which indicates the likely pace of activity three to nine months into the future, rose 0.2 per cent to post an annualised growth rate of 6.3 per cent in January.

The result, released on Wednesday, was above the long-term trend growth rate of 2.7 per cent.
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There are signs that consumer borrowing is rising in response to better economic conditions.

Of course, too much debt can be a bad thing, as the global finance crisis reminded us all.

But a willingness to take on debt can be an important indicator for the strength of the spending that drives the economy along, generating jobs and bringing unemployment down.

The latest credit card statistics from the Reserve Bank of Australia (RBA), released on Friday, are tentatively good news in that regard.

Total credit and charge card balances outstanding declined by 1.6 per cent to $46.152 billion in January from $46.912 billion in December.

But these figures are not seasonally adjusted - a fall is normal in January after the pre-Christmas spending binge in December has wound down.
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The next 48 hours will likely bring mixed results on the economy for the federal government, already under fire in opinion polls over its botched home insulation program.

There is a growing expectation on financial markets that the Reserve Bank of Australia (RBA) will decide to lift the official cash rate at Tuesday’s board meeting that would further increase the average home loan monthly repayment by just under $50.

However, Wednesday’s national accounts are likely to show a solid acceleration in economic growth in the three months to December, possibly growing at its fastest pace since mid-2007.

RBS Australia chief economist Kieran Davies said markets were now pricing in a 60 per cent likelihood that the central bank will lift the cash by 25 basis points, to 4.0 per cent, after its surprise decision to leave the rate unchanged in February.
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Australians may have been forced to take some tough decisions during the global financial crisis, but a new survey suggests they got off lightly compared to other Asia Pacific countries.

The research by global financial services group, Citi, found that 42 per cent of Australians said they had to make some tough changes to their finances in the past year.

In comparison, the survey of 11 Asia Pacific countries found a greater number of respondents in Thailand (68 per cent) were forced to make changes, followed by the Philippines (65 per cent) and Indonesia (64 per cent).

Australians also were much less likely to have downgraded or cancelled their mobile, TV or internet package, or postponed a holiday, or put off buying a big ticket item last year than the other 10 countries.
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Australia is in a class of its own relative to all other nations in the global economy whose capital markets are in for a “rocky road” in 2010, according to IGMarkets’ global chief executive Tim Howkins.

The head of the global contracts-for-difference (CFD) provider questions the idea that Australia’s fortune is tied to emerging markets and says Australia’s economic growth rate and interest rate hikes make it an isolated case.

“You’re on a different cycle to the western world and equally I’m not sure how correlated you are to the emerging markets,” he said in an interview during a three-day visit to Australia.

“I think you’re kind of out on your own.”

Volatility will be a hallmark of financial markets in 2010 and the European Union will almost certainly have to bail out Greece, he added.
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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.
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Australians more confident about the improving employment outlook have driven a stronger than expected increase in monthly lending growth.

Total credit provided to the private sector by financial intermediaries rose by 0.3 per cent in December, following a 0.1 per cent increase in November, the Reserve Bank of Australia (RBA) said on Friday.

RBC Capital Markets senior economist Su-Lin Ong said the monthly increase was driven by lending for housing and personal consumption related purposes.

“Upbeat and confident households assisted by a stronger labour market and continued recovery in wealth look to be driving a renewed appetite for borrowing,” she said.

Over the year to December, total credit rose by 1.5 per cent.
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The Australian economy will recover in 2010 but it will be a slow comeback as the federal government withdraws its stimulus spending and interest rates continue to rise, an economic forecaster says.

A labour market rebound is also expected to be sluggish.

An Access Economics business outlook report released on Wednesday predicts an improvement in the Australian economy in 2010 and 2011 - with a catch.

The recovery will be slower than the aftermaths of the early 1980s and early 1990s recessions.

“Withdrawal of stimulus will hit harder than most realise - the cash splash has passed and interest rates are amid a return to `normal’,” the report said.

Consumers would stay in “low gear” as rates rose, it added.
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By Jill Fraser for Lending Central

It began with the media’s portrayal of last week’s November housing finance figures, which highly respected finance commentator, Michael Pascoe notes were generally reported as a grim sign of things to come.

“.. a drop off in borrowing that was rather bravely blamed by some on the interest rate rises and the phasing out of special assistance for first home buyers”, he wrote in his Yahoo7 finance column.

The very next day some of the same reporters who were bemoaning the dip in housing finance were taking the same tack in response to a rise in November personal borrowing.

“No wonder we get confused,” he laughs.

It’s all about interpretation he told Lending Central pointing out that it’s perfectly valid to read data in a number of ways and essentially it boils down to whether the economist or journalist is coming from a pessimistic or optimistic perspective.
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By Paul Lahiff for Lending Central

January is always a good month to get the crystal ball out and see what secrets it might reveal for the year ahead. The media are always keen to add to the list of predictions - it fills space when the news cycle quietens down !

The last few weeks have featured optimists, pessimists and fence sitters on the outlook for housing finance over the next twelve months. In this piece, I will outline the positive forces for growth as well as the restraining influences and end with an estimate of how I see things finishing up for the year.

The positives for growth or the “tailwinds” include:

• the strength of the Australian economy - despite predictions of Armageddon, the economy has come through the global financial crisis in good shape. A recent Financial Review survey of business economists forecast economic growth for calendar 2010 at a little over 3%, compared to 1% for 2009. Unemployment has come in today at 5.5%, a drop on the previous month and nowhere near the 8.5% level predicted twelve months ago, and inflation at this stage is behaving itself.

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Official interest rates could hit six per cent by the end of 2010, as Australia’s economic story enters a new chapter of higher inflation.

Analysts say the recent run of positive data, including Thursday’s record-breaking jobs report, point to an economy that is speeding up faster than many policymakers and market players had anticipated last year.

TD Securities senior strategist Annette Beacher says the latest unemployment figures show the economy is speeding up with less spare capacity than previous economic upswings, potentially putting upwards pressure on inflation and therefore interest rates.

Ms Beacher says there is a risk the Reserve Bank of Australia (RBA) will push the cash rate from its current expansionary setting, through the “neutral” range of 4.5 to 5.0 per cent, and into restrictive territory by the end of the year.
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Australian private businesses are the third most optimistic in the world about the domestic economy for 2010, a global survey says.The local firms also showed flexibility and entrepreneurial spirit in 2009, making the most of changing economic conditions, a survey by global accounting firm Grant Thornton International found.

The survey of medium to large private businesses found 79 per cent of those in Australia were optimistic about the local economy compared to only 11 per cent in 2009.

Grant Thornton Australia national head of privately held business, Tony Markwell, said Australian firms showed “entrepreneurial spirit” during 2009.

“Businesses have responded quickly and effectively to changing economic conditions by exploiting their size and flexibility as private entities,” Mr Markwell said.
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Economy activity remains patchy even after a full year of recovery.

And it will most likely stay patchy even when the main measures of activity show the economy is in full swing.

When the Australian Bureau of Statistics (ABS) reports the December quarter national accounts on March 3 it will very probably make it four quarters of expansion in a row.

After a contraction in the last quarter of 2008 growth had seemed a long way off.

But the recovery, unlikely though it seemed a year ago, will not spread the joy around equally either through time or between states and industrial sectors.

The retailers have had their day in the sun, the surge in spending accompanying the cash handouts of late 2008 and early 2009 has washed through the economy and will not be repeated.
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ANZ Banking Group Ltd says it expects provisions for doubtful debts to fall in fiscal 2010, with more significant falls the year after.

ANZ’s retiring chairman, Charles Goode, told the bank’s annual general meeting on Friday that net profits “should be higher” in the coming year.

“There is good evidence that the Australian and New Zealand economies are recovering well and the Asian economies are showing strong growth,” Mr Goode told the meeting in Melbourne.

“The financial markets are also recovering and the volume of lending should pick up,” he said.

“Increased competition is, however, likely to restrain the further recovery in interest margins arising from re-pricing maturing loans.

“At ANZ, the level of provisions for doubtful debts should fall in the year ahead and more significantly in 2011.
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Trying to forecast next week’s gross domestic product (GDP) has become a bit of a stab in the dark.

Not only have the components of GDP in the past few weeks been all over the shop, the Australian Bureau of Statistics (ABS) is introducing new international accounting standards for the national accounts.

That’s why the September quarter report has been delayed until next Wednesday, rather than its usual release time of the first Wednesday in December.

It means the data history for the series will be revised, and of course, if you don’t know your starting point, it’s difficult to gauge where you are going.

What we do know is that consumer demand was soft in the three months to September, home building has improved, business investment remains weak and government spending has been strong, especially construction.
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