Battered by higher interest rates and the global energy shock stemming from Persian Gulf hostilities, a leading Australian economic index turned negative in March, reported Westpac Economics, a part of the large bank.
"The six-month annualized growth rate in the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, declined to negative 0.13% in March from a positive 0.05% in February," reported Westpac on Wednesday.
The leading economic index, as of March, has declined from a positive 0.31% in October last year, "a 0.44% deterioration. The detail shows clear drags from the shifting interest rate backdrop and the global energy shock associated with the conflict in the Middle East," said Westpac Economics.
The biggest drags on the March leading index were large declines in consumer confidence, "a sharp sell-off in the Australian sharemarket," and "a flattening yield spread as short-term interest rates have moved higher," advised Westpac Economics.
In contrast, higher commodity prices and an uptick in dwelling approvals (housing start permits) somewhat offset the drags on the index, explained Westpac Economics.
The Reserve Bank of Australia (RBA) next meets on May 4-5, and despite the somewhat gloomy economic outlook, will likely raise interest rates again to counter rising prices, said Westpac Economics.
The RBA raised rates in February and March, to the current level of 4.1%.
At the next RBA meeting, rising concerns over inflation will more than offset worries about sluggish economic growth, said Westpac Economics.
"As such, we expect the RBA to raise the cash rate by another 25 basis points in May, with further moves likely in subsequent months," said the economic research outfit.