Australia's multi-speed economy has again been highlighted in a report showing Western Australia far ahead of the pack in output.

WA has come out as top performer in the CommSec quarterly State of the States report, with an economic output 28% higher than its 10-year average. Strong housing activity led Victoria and the ACT to rank next, with the remaining states and territories occupying the bottom tier in terms of economic growth.

The result has led CommSec chief economist Craig James to label Australia a "three-speed economy". James said any recovery in global economic growth is likely to benefit resources-dependent economies.

NSW recorded the weakest result of all states and territories, at a sluggish 8% above its 10-year average. James called the outlook for the NSW economy "uncertain", with falling retail spending and dwelling starts dogging the state.

ADAM SMITH - AUSTRALIAN BROKER NEWS

The Real Estate Institute of Western Australia is badging a small December rise in median Perth house prices as a potential turning point in WA's house price woes.

Though only recording a modest increase of about 0.5%. it represents a shift in fortunes according to the REIWA, with median prices having declined since March 2010 to the current price of $465,000.

The rise has been caused by trade-up buyers countering the influence of first homebuyers, who have been skewing figures downward by trading larger volumes of lower priced stock.

“REIWA data show that while first home buyers continue to be increasingly active in the market, we saw an increase in trade-up buyers during the December quarter and an increase in house sales of around 6 to 7 percent which may have put a floor under prices,” president David Airey said.

AUSTRALIAN BROKER NEWS

It now seems all but certain that the Reserve Bank will cut interest rates next month, with AMP's senior economist Bob Cunneen predicting the cash rate will drop to 4.0 per cent.

According to Mr Cunneen, the latest retail spending data suggests the Australian economy is flatlining, which should encourage the Reserve Bank to look at rates.

Data from the Australian Bureau of Statistics found retail sales were flat in November – below the market expectation for 0.4 per cent growth.

In year-ended terms, retail sales rose 3.1 per cent, which is well below the long run average of 5.6 per cent year on year.

But while some borrowers will be happy to hear interest rates are still on a downwards trend, RP Data's Cameron Kusher said interest rate cuts shouldn't necessarily be seen as "good news".

"Rate cuts are great for those with a mortgage, because it makes your repayments cheaper. That said, rate cuts also mean that the economy isn't doing so well.

"For people that want to jump into the market it is going to be harder. They will have to have more savings because the LVR on loans will be lower. And, I don't think we will see the reintroduction of the First Buyers Grant Boost."

THE ADVISER

A two-punch combo of lower interest rates and rising consumer confidence means brokers could face a knockout year in 2012.

According to Loan Market, the challenging conditions of 2011 are being swept aside by positive changes in the lending landscape.

“The year ahead looks quite promising with the likelihood of interest rates continuing to head down and lender risk appetites growing,” said Loan Market corporate spokesperson Paul Smith.

“The Melbourne Cup day rate cut by the Reserve Bank of Australia (RBA) was a turning point for the market and the follow up December reduction will help boost activity over the summer.”

Economists are predicting the RBA will make further cuts to the official interest rate when it meets again next month, giving borrowers greater relief.

The natural disasters in Queensland and Victoria at the start of 2011 stalled market activity, while the introduction of the carbon tax curbed consumer confidence.

Consumer fears were also heightened by speculation that the RBA could raise rates to combat inflation. However the financial situation in Europe and the US forced the RBA to reconsider such action.

Despite ongoing uncertainty over the European debt crisis, consumers are more upbeat than they were in 2011, Smith said.

“The fundaments of the Australian economy remain quite strong and there are plenty of opportunities for the service, manufacturing and primary sectors to grow and succeed in 2012.”

AUSTRALIAN BROKER NEWS

It now seems all but certain that the Reserve Bank of Australia will cut the official cash rate again in February.

According to recent domestic data, there is a real need for another rate cut, with both consumers and businesses remaining extra cautious about borrowing.

Another rate cut would take the official rate to just 4 per cent – 100 basis points above the historic low.

Research by AMP found personal credit rose marginally by 0.1 per cent in November but remains down 1.1 per cent over the year.

"Australian consumers appear to have minimal interest to borrow for spending purposes or to acquire assets," AMP's senior economist Bob Cunneen said.

"Housing credit is more solid (November 0.5 per cent) but annual growth at 5.7 per cent is still a fraction of the 15 per cent pace set in the decade prior to 2007.

"Business credit was flat in November and has barely expanded by 0.9 per cent over the past year. This sluggish corporate borrowing arguably also reflects a preference to use retained earnings rather than use external funding sources.

"With that in mind, we believe the RBA will lower Australia's official cash rates by a further 0.25 per cent to 4.0 per cent in February."

THE ADVISER

The RBA's decision to cut rates on Melbourne Cup day resulted in an immediate impact on house prices with properties in Australia's capital cities recording their first price rise of the year in November.

The new figures were released in RP Data-Rismark's Home Value Index for November and boost hope that home buyers are reacting positively to the Reserve Bank's change in direction on interest rates.

Yellow Brick Road's Mark Bouris said there is reason to be optimistic in the first few months of this year.

"The rise in Australian capital city house prices is proof that the RBA’s rate cuts have had a real impact on immediate market recovery," Bouris said. "We believe today’s data is just the tip of the iceberg when it comes to positive house price movement heading into 2012 and it looks like for the first time in a long time, Australian home owners are taking back the market."

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