RTTNews - Wednesday, a key indicator for Australian economic activity signaled improvement in the economic situation for the coming months.

The Westpac-Melbourne Institute Leading Index dropped 3.3% on an annualized basis, marking a significant improvement from the 5.3% decline witnessed in the previous month. However, the annualized growth rate is well below its long term trend of 2.6%.

The leading index indicates the likely pace of economic activity three to nine months into the future. The index had reached its low point with a 6.1% decline in February.

The pace of contraction of the growth rate of the Leading Index is easing considerably, Westpac said. Clearly the low point in the outlook for growth has been reached and steady improvement can be expected from here.

The improvement of the annualized leading index from February to June was attributed to improvements in the share market, overtime work, corporate profits and dwelling approvals.

Three of the four components that make up the leading index were higher in June. The all ordinaries index rose by 3.6%, while dwelling approvals were up by 9.3%, and real money supply grew 0.5%.

The leading index rose 1.8 points or 0.7% from the previous month to 247.9.

The coincident index dropped 0.7% year-on-year in June, also below its long term trend of 2.9% growth.

Westpac Chief Economist Bill Evans said markets expect the Reserve Bank of Australia to make its first rate hike as soon as October/November.

Westpac's bias has been for the RBA to hold off raising rates given that we still assess the current promising improvement in confidence to be fragile and an untimely rise in rates could significantly damage confidence.

We believe the RBA may also be mindful of these risks and will therefore delay its first move until February next year, when the recent improvement in economic indicators has had time to consolidate, Evans said.

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