Australia's economic recovery rate is slowing down, new research has found.
The annualised growth rate of the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was 4.6 per cent in September.
While this figure was above its long term trend of 3.1 per cent, Westpac senior economist Matthew Hassan said the speed of the turnaround is "a little disconcerting".
"The growth rate of the Leading Index continues to point to a solid pace of expansion heading into late 2010/early 2011, but that pace has slowed abruptly over the last six months.
"At 10.3 per cent, the peak growth rate in the Index back in March was extremely high," Mr Hassan said.
"Although it currently remains comfortably above its long term average a continuation of trends seen over the last few months could easily see the growth rate drop further in the near term to a below average pace," he said.
According to Mr Hassan, domestic factors such as dwelling approvals (-1.3ppts), overtime worked (-1.3ppts) and productivity (-1.3ppts) have been instrumental in the growth stall.
Mr Hassan said with the Reserve Bank's November decision reported as ‘finely balanced', the major banks making additional increases to variable mortgage rates over and above the RBA, and little urgency apparent in the RBA November meeting minutes, a December interest rate increase looked highly unlikely.
"However, we continue to see the RBA as carrying a medium term tightening bias with a further rate hike coming in mid 2011 once the bank has had time to assess the effects of the November move," Mr Hassan said.