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Fresh signs of recovery from low base -

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Fresh signs of recovery from low base

The World Today - Wednesday, 17 June , 2009 12:14:00

Reporter: Peter Ryan

PETER CAVE: There are more positive signs today that the economy is starting to slowly recover from
the worst downturn since the Great Depression.

A closely watched index from Westpac and the Melbourne Institute has confirmed that while activity
is still in negative territory, the pace of decline is easing.

To take a look, I'm joined in the studio now by our business editor Peter Ryan.

Peter, what does the index tell us about the health of the economy and how might it be on the mend?

PETER RYAN: Well Peter, this index forecasts the likely pace of economic activity over the next
three to nine months and it's saying the economy might just be past the worst at minus 3.5 per cent
in April. That's still very bad but it's a whole lot better than the negative 5.1 per cent in March
and the even worse minus 6.1 per cent in February, which was the lowest the index has hit since
1982. So to be clear, the index is coming off a very low base but the trend is that the economy is
coming out of a trough, though a long way from getting back into positive territory.

PETER CAVE: So what's causing this apparent recovery?

PETER RYAN: Peter, this is all about confidence and the evidence has been building up from improved
share prices. We've been seeing in the recent bear market rally there's been an increase in the
amount of overtime being worked, meaning employers are more confident. Dwelling approvals have had
a bounce along with corporate profits and there's even been a very slight lift in US industrial
production. This could have an impact on whether the Reserve Bank becomes more relaxed about the
economy but Westpac's chief economist Bill Evans worries about more shocks in store.

BILL EVANS: There are a number of other factors I think will be the mains ones driving the Reserve
Bank's thinking over the next six to nine months, the first one being the undoubted further
deterioration in the labour market. The second one, from my perspective, being risks of some
disappointing data coming out of the global economy, particularly in Europe, and thirdly the impact
of rising fixed interest rates are starting to have on the economy overall.

PETER CAVE: Westpac's chief economist Bill Evans. Peter, we're seeing some evidence of more
confidence from consumers but also I guess from a very low base?

PETER RYAN: That's right, the Myer chain of department stores says its first half earnings are
actually up by 2.3 per cent at almost $80-million even though sales are down 3.7 per cent. And part
of this increase in earnings has been put down to a bigger sale in upmarket clothing. It appears
that women are buying more cosmetics such as lipstick, more shoes and other fashion accessories.

And so at least anecdotally these are feel good purchases associated with a recession. Myer has
also been wooing more customers through the refurbishment of stores around the country and an
upgrade to its loyalty program. But the outlook is not good for Myer's second half. It's expecting
sales to fall 5 per cent and that's in line with expectations of rising unemployment.

PETER CAVE: Our business editor Peter Ryan.