12 Jul 2013

Index suggests negative drought effect in June quarter

7:00 am on 12 July 2013

An index using traffic volumes as a proxy for economic activity suggests that the effect of the drought could come through negatively in the June quarter, but overall economic momentum is lifting.

The ANZ Bank's Truckometer, which uses traffic volumes as a proxy to map quarterly economic growth, shows traffic flows fell last month.

The Heavy Traffic Index, which measures flows of trucks on 11 roads, dropped a seasonally adjusted 7.7% in June, with flows falling on all of those roads.

The more volatile Light Traffic Index, which gives a six month lead on GDP growth, fell 2.1%, with traffic falling on every road in the index.

ANZ senior economist Sharon Zollner said GDP growth in the first quarter was stronger than predicted by the index, and there may be flow through to the second quarter result due to the timing of the drought.

In the near term, she said drought can boost GDP as stock are sent early to slaughter and she estimates the biggest hit will occur in the second quarter and whether that's being picked up by the index is questionable.

"So we saw GDP in Q1 outperform what these indexes were suggesting and we might now see the counter of that with Q2 not being quite as good perhaps as these indicators suggest."

Ms Zollner said the index is likely to show a solid bounce back in July.