Rate rise chances firming with growth outlook

A slew of economic data out this week suggests the signs of economic slowdown evident in the second half of last year may be fading in favour of a stronger growth outlook in 2007. This lends credence to the Reserve Bank's recent assessment that further interest rate rises this year, while not certain by any means, may be in the offing. It's too early to say for sure, especially given concerns about US recession resurfacing this week, but if the economy returns to its stronger growth path recorded up to mid 2006, then we may see another quarter-percentage point rise in rates in the next six months or so. There won't be any rise coming out of the March RBA meeting on Tuesday but later this year creates interesting scenario, given the looming federal election. Business investment figures for the December quarter returned to positive - and importantly, not just in the mining sector but across the economy. There was a 1 per cent lift in total capital expenditure after a 5 per cent fall the previous quarter. The investment plans of businesses over the next two years are strong and hint at a return to double digit growth. There was also a turnaround in construction work done during the quarter, rising 4 per cent after falling in the September quarter. These are perhaps signs that the economy is shrugging off the effects of two mid-year interest rate rises, although there was another in November. Private sector borrowing was on the up in January, courtesy of bounces in both personal credit and business borrowing. These figures jump around a bit but generally continue to show healthy levels. Housing credit was up too, but marginally. Retail sales had an unexpectedly strong month in January, rising 0.9 per cent, although the trend identified by the Bureau of Statistics remains flat. December quarter GDP is out this coming Wednesday, which will tell us where economic growth was going into 2007 and more clues on whether rates stay stable or rise this year.