The pace of Australia’s economic recovery could be considerably faster than expected, according to a private sector survey released today.

The Westpac – Melbourne Institute Leading Index of economic activity surged a further two per cent to 5.8 per cent in September – a staggering turnaround from a -5.4 per cent figure in May this year. It is now comfortably above the trend figure of 3.1%.

Released monthly, the index highlights the likely pace of economic activity in the next three to nine months. Researchers are now expecting growth for 2010 to come in at 1.5% and rise to 4% next year. It was only August when analysts, upon releasing a negative reading for the month of June, were anticipating growth of just 0.2% this year and 1.5% in 2010.

Today’s data shows the fastest turnaround since the rebound from the recession in the 70s and indicates that growth forecasts for next year may be conservative. It does not bode well for interest rates, however, as forecasts for stronger growth are likely to see the RBA move more swiftly toward a more ‘normal’ setting of the cash rate. As it stands, most economists are predicting a further 25 basis point rise next month to follow hikes in October and November, although the RBA has hinted it may be prepared to pause until next year.