Australia: Leading Index loses some ground but growth still above trend - Westpac

The six month annualised growth rate in the Australia’s Westpac–Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, fell from 1.43% in February to +0.69% in March, notes Bill Evans, Research Analyst at Westpac.

Key Quotes

“The growth rate in the Leading Index remains in positive territory signalling above trend growth over much of the remainder of 2018. Drivers of the slowdown in the month have been from the domestic components – a slowing labour market; and some weakness in housing while rising short term interest rates have reflected liquidity pressures from global markets.”

“Westpac’s own forecast for growth in 2018 is 2.7%, around trend, and therefore somewhat weaker than is currently implied by the Leading Index.”

“It appears likely that the Reserve Bank will lower its upbeat 3.25% growth forecast for 2018. The latest minutes from the Board refer to growth as “expected to exceed potential growth” (consistent with the signal from the Leading Index). However, with potential growth at 2.75% we expect the RBA will lower its growth forecast for 2018 to 3.0%.”

“Looking through the ‘choppy’ profile in recent months, the Leading Index growth rate has lifted slightly over the last half year from 0.54% in October to the 0.69% in March.”