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Non-mining sector expected to lift, which stocks should you buy?

According to the Westpac/Melbourne Institute Leading Index – which predicts future growth in six to nine months – Australia’s non-mining sector is expected to rise from the ashes. In October, the index rose to 1.2%, up from 0.6% in September.

Westpac’s (ASX: WBC) chief economist, Bill Evans, says the growth trend has been above average for the past six months and sets the standard for future growth: “Recent above-trend growth in the Index is pointing to a much better outcome over the next few quarters.”

The lift comes despite the obvious downward trend in the mining sector and suggests troubled non-mining companies will be in for a strong rise in the next year. We’ve already seen a rise in both property and stock markets which has spurred on a boost in confidence for both businesses and consumers.

Despite the projected lift, Westpac believes the RBA will cut the cash rate from its current record low of 2.5% to 2.0% by mid-2014. It is predicting two 0.25% cuts, one in February and one in May. This is contrary to ANZ (ASX: ANZ), which recently forecasted the cash rate to remain on hold until 2015, when it expects it to rise not fall.

ANZ’s case seems to be supported by all banks that recently lifted their three-year fixed rates, indicating they’re at odds over the possibility of future cuts. With a booming property market and confidence slowly but surely returning to both businesses and consumers it may give reason for the RBA to hold off easing rates further.

Foolish takeaway

If Australia’s non-mining sector does begin to gather steam and interest rates fall, investors will look at building stocks, such as GPT Group (ASX: GPT) and Fletcher Building (ASX: FBU), and retailers, such as Myer (ASX: MYR) and JB Hi-Fi (ASX: JBH). In addition, other high-yielding dividend stocks will continue to be in demand.

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Motley Fool contributor Owen Raszkiewicz owns shares in Myer. 

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