Sub-prime losses top $50 billion: Economy round up

Banks in the US exposed to the country’s disintergrating sub-prime mortgage market have now had to write off more than $50 billion in losses this year, after investment bank Citigroup announced a further $15 billion write down yesterday.

With write-down figures of that magnitude floating around, it is no surprise that pessimism about the future of the US economy is growing. The number of economists who believe the US economy will slide into recession has doubled over the past two months, a new National Association of Business Economics survey revealed today, while a survey of home builders released earlier in the week found confidence remaining at record lows.

In Australia, however, the good news continues to outweigh the bad. New motor vehicle sales in October increased 1.1% on the previous month to 88,856, with spending on more expensive sports utility vehicles driving the growth with a 4.6% increase.

And the trend for economic growth across the economy in the months ahead is unambiguously upward, according to today’s Westpac-Melbourne Institute leading index of economic activity for September. The measure predicts growth in the next six months or so is likely to hit an annualised 5.8% , above its long term trend of 4.3%.

Consumer spending, employment growth and strong levels of business investment will drive the growth, according to Westpac chief economist Bill Evans.

And, he says, the figures support the view that the Reserve Bank of Australia will have to lift interest rates again. “All the signs are that the RBA has more to do in the battle against inflation,” Evans says.

On the markets, at 1.25pm the S&P/ASX is down 0.7% on yesterday’s close to 6382.7 and the Australian dollar is trading at US88.61c, up on yesterday’s US88.44c close.