Aust economy set to slow: Westpac

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The pace of economic activity is likely to slow over the next three to nine months, largely as a result of the flooding in Queensland and other natural disasters, Westpac (ASX:WBC) has warned.

The company also revealed it does not expect the Reserve Bank to increase rates before the September quarter at the earliest.

The Westpac-Melbourne Institute Leading Index, a measure of the likely pace of economic activity over the next three to nine months, fell to 3.5% in January.

This is a decline from the 4.6% recorded in December and the historic 9% growth rates from early last year. But Westpac said the figure was still slightly above the long-term trend of 3.3%.

Westpac Senior economist Matthew Hassan said to expect volatility in the coming months as the initial impact of the Queensland floods fades, but other extreme weather events - including Cyclone Yasi and last week's huge earthquake in Japan – start to make their effects felt.

“This will make getting a read on underlying economic trends more difficult than normal,” he said.

The decline in the index was also attributed to dips in commodity prices, overtime worked, corporate profit, productivity and US industrial production.

By contrast, overtime worked grew 3% in the December quarter, commodity prices rose 0.2% and profit was up 0.3%.

A 15.9% slump in dwelling approvals, likewise due largely to the floods, was also blamed for January's index decline.

The employment figures showed mixed results, with employment rising 0.1% but the unemployment rate increasing by 0.1 percentage point. Gross non-farm household income increased 0.3%.

Industrial production meanwhile declined 2.4%, Westpac said.

Westpac yesterday demonstrated that its own performance would be affected by the recent run of disasters, disclosing that subsidiary Westpac New Zealand had estimated credit losses of between NZ$30 million ($22.1 million) and NZ$100 million from the February Christchurch earthquake.