Australian Leading Index Climbs on Shares, Building

By Jacob Greber

May 27 (Bloomberg) -- An Australian index of leading economic indicators rose in March for the first time in seven months after shares surged and demand for housing climbed.

The index, a gauge of future economic growth, increased 0.3 percent to 247.9 points from 247.2 in February, Westpac Banking Corp. and the Melbourne Institute said in Sydney today. The index shrank at an annualized rate of 5.1 percent in March, after contracting 6 percent the previous month.

Today’s report adds to signs that the lowest interest rates in 49 years and government spending will help Australia rebound from its first recession in two decades. Central bank Governor Glenn Stevens said last week the economy is in a good position to benefit from a global recovery later this year.

“The slight improvement in the index is consistent with indicators suggesting the pace of contraction in the global economy has eased in recent months,” said Matthew Hassan, a senior economist at Westpac in Sydney.

“However, recovery still looks to be a long way off,” Hassan added. “The index remains deep in recession territory, implying a likely further contraction in activity through the middle of 2009.”

The Australian dollar rose to 78.68 U.S. cents at 10:34 a.m. in Sydney from 78.63 cents just before the report was released. The two-year government bond yield was unchanged at 3.63 percent.

To stoke an economy that contracted in the fourth quarter for the first time in eight years, the central bank reduced the benchmark rate by 4.25 percentage points between early September and April to 3 percent.

Shares Rebound

The S&P/ASX200 stock index has climbed 21.5 percent since March 6. Home-loan approvals rose in March for a sixth month as government payments to first-time buyers of as much as A$21,000 ($16,500) and cheaper mortgages cuts spurred demand.

Westpac’s leading index tracks eight gauges of activity, such as company profits and productivity, to give an indication of how the economy will perform over the next three to nine months.

“Even if we see similar improvements in the months ahead, it will take three or four months for the index to return to levels consistent with positive growth,” Hassan said. That implies “a recovery in the real economy is unlikely before the December quarter at the earliest.”

Westpac’s coincident index, a measure of the current state of the economy, rose 0.1 percent in March to 240.2 points. The annualized growth rate of the coincident index was 0.7 percent, compared with its long-term trend of 3.3 percent.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net