Research tips economy on the mend

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Though economic growth has dropped off, new research indicates Australia's economy may be recovering from the effect of natural disasters.

The Westpac-Melbourne Institute Leading Index, which measures the likely pace of economic activity in the next three to nine months, has found growth is expected to be 2.7% from April 2011, below the Index’s long-term trend of 3.1%.  In spite of the weak results, Westpac senior economist Matthew Hassan said the Index was not yet cause for alarm. Hassan claimed natural disasters earlier in the year could be to blame for the poor result, and said economic activity is expected to bounce back.

“These events have created significant distortions that will take time to drop out of the picture. As this happens we may continue to get conflicting signals. The good news so far is that even with the negative hit, the growth rate in the Leading Index does not appear to be so low as to be of major concern,” Hassan said.

Hassan commented that the Index's six month growth rate, while below trend, is not "overly weak". The six month growth rate rose from 2.3% in February to 2.7% for April. Hassan said this indicated the worst economic effects of this year's natural disasters had passed.

The report comes in the wake of the Melbourne Institute's Household Saving and Investment Report, which found Australian households saw a sharp 24.3% decline in their financial condition in June.

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