Australian economy shapes for recovery

Interest rate cuts are having an impact on economy activity in Australia

By CNN's Geoff Hiscock, Asia business editor

SYDNEY, Australia (CNN) -- Australia's economy is in its best shape for months and is poised to make a strong recovery over the next year, the National Australia Bank said Tuesday.

Its chief economist, Alan Oster, said the survey pointed to Australia as likely to be the fastest or one of the fastest growing economies among members of the OECD in 2001-02.

But he warned that this depended on the world economy not deteriorating "excessively".

He said the main risk to Australia was the sharp slowing in the global economic outlook.

The monthly survey by the NAB, Australia's biggest and most profitable bank, is regarded as one of the most reliable barometers of the economy.

Highest reading since August 2000

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The survey released Tuesday shows the business conditions composite index improved sharply, rising 11 points from minus 14 in May to minus 3 in June.

That is the highest reading since August 2000.

For a second month in a row, business confidence grew, putting on 8 index points to a total of plus 16.5 points, the highest level since September 1999.

The improvement was broadly based, with the exceptions of mining and agribusiness.

Oster said that while survey results for any one month needed to be interpreted with caution, there was little doubt that the June results added to the suggestion that Australia's domestic economy had reached a turning point.

His findings accord with last week's comments by the president of the Australian Chamber of Commerce and Industry, Mark Paterson, who said the chamber's own survey showed there was an "unmistakable pick up in the level of economic activity."

Paterson said the turnaround had only just begun and there was still much that could go wrong among Australia's key trading partners, who include Japan and the U.S.

Interest rate cuts having an impact

Oster said interest rate reductions were starting to have an impact on retail and manufacturing, and there were expectations of a sharp rebound in the construction industry.

The Reserve Bank of Australia cut interest rates three times between February and April, reducing the benchmark cash rate to 5 percent. But it has kept rates steady for the past three months.

Australia had its first quarter of economic contraction in 10 years in the December 2000 quarter, with gross domestic product falling by 0.6 percent. This cut the annual growth rate to 2.1 percent last year.

That led to fears in early 2001 that Australia was headed for recession.

But national accounts released last month showed the March quarter was positive, with seasonally adjusted growth of 1.1 percent over the previous quarter.