Australia: Leading Index back at trend – Westpac

Bill Evans, analyst at Westpac, notes that the Australia’s six month annualised growth rate in the Westpac– Melbourne Institute Leading Index, rose from –0.09% in June to +0.05% in July.

Key Quotes

“This is first above trend read since November last year. Further confirmation of this around trend reading would be consistent with the economy growing around trend for the last three or four months of 2019 and well into the first half of 2020.”

“The Reserve Bank recently lowered its growth forecast for 2019 from 2.75% to 2.5%. With growth momentum in the first half of the year around 2% annualised the RBA is expecting momentum in the second half to lift to 3% annualised – above the trend pace of 2.75%.”

“Westpac accepts that an improving housing market, tax cuts and lower rates are likely to boost momentum in the second half to around 2.5% annualised – somewhat below trend.”

“The Leading Index growth rate has improved over the last six months from –0.71% in February to +0.05% in July.”

“The Reserve Bank Board next meets on September 3. The Board is expected to keep rates on hold.”

“Westpac still expects the next rate cut at the October Board meeting. The Bank’s recent forecast revisions assumed market pricing of one rate cut before year’s end and another in the first half of 2020. Despite these assumptions the Bank was forced to lower its inflation and wages growth forecasts while raising the expected path for the unemployment rate.”