A measure of economic growth in the coming months has continued moving above trend, thanks to strong corporate profits and improved productivity.
The Westpac Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was 4.9 per cent in May - above its long-term trend of three per cent but lower than its April reading of 5.4 per cent.
Westpac chief economist Bill Evans said the index had now grown above trend for six months, after spending the previous 12 months well below trend.
"That long period of underperformance in the Leading Index sent a reasonably accurate signal around the strength of the Australian economy which grew by a disappointing 2.5 per cent in the year to March 2013," Mr Evans said.
"The issue is whether we can be as confident around this new signal, that the growth pace is likely to pick up markedly from the June quarter 2013."
Mr Evans said Westpac economists were still forecasting another interest rate cut in August and were unfazed by the Reserve Bank's July board meeting minutes which suggested the falling Australian dollar had lessened the urgency for a further reduction.
"We are not unnerved given that it is often the case that a central bank's justification for a certain policy move can be over interpreted as forward guidance rather than explaining the current decision," Mr Evans said.
"With weak business confidence, disappointing evidence around consumer spending, a steadily rising unemployment rate and slowing wages growth, the case for another cut seems respectable."
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