Australia Leading Index Again Points to Below Trend Growth

--RBA Growth Forecasts Appear Optimistic Vs Leading Index Signal

     SYDNEY (MNI) - From Westpac-Melbourne Institute's Leading Index for

September published Wednesday.

                                                         September  August

--------------------------------------------------------------------------

Leading Index                                                97.43   97.35

6-Mo Annualized Deviation From Trend, percentage points      -0.21   -0.16

     FACTORS: The leading index pointed to further fall in below-trend growth

momentum three to nine months in the future. This is the second straight month

that the index is pointing to below-trend growth, which is a sharp turnaround

from strong positive, above-trend reads in the early months of the year. 

     In the past five months, the leading index growth rate has slowed from

0.93% above trend in April to 0.21% below trend in September -- a deterioration

of 1.14 percentage points. The reversal has been driven by multiple components

including commodity prices (-0.96 point), the local share index (-0.42 point),

the yield spread (-0.19 point) and U.S. industrial production (-0.15 point). 

     TAKEAWAY: The leading index suggests the Reserve Bank of Australia's growth

forecasts for the economy in the August Statement on Monetary Policy are on the

optimistic side. The RBA's forecast suggests above-trend growth of 3.25% in 2018

whereas Westpac's forecast is 2.5% -- which is below the estimated trend rate of

2.75%, according to Westpac.

     COMMENTS: Westpac chief economist Bill Evans expects the RBA to leave the

cash rate on hold in November. "In fact Westpac does not expect rates to rise at

all over the course of next year despite market pricing and general commentary,"

he said.

     "In the minutes for its October meeting the Reserve Bank Board signaled

that policy will respond to domestic economic developments. Decisions by other

central banks to raise rates will not be the decisive factors. We assess that

the Bank, with a much more optimistic outlook for the economy than Westpac,

expects to be increasing rates. However the developments in the economy which we

anticipate are likely to lead the Bank to revise its view and keep rates on

hold," Evans said.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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