Australia Westpac-MI Leading Index Signaling Below-Trend GDP

--RBA Growth Forecasts Appear Optimistic Vs Leading Index Signal

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

published Wednesday.

                                                          July   June

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

Leading Index                                            97.42  97.30

6-Mo Annualized Deviation From Trend, percentage points  -0.10  -0.54

     FACTORS: The index rose in July but pointed to below-trend growth momentum

for a second straight month. This is a sharp turnaround from the strong

positive, above-trend readings at the start of the year. 

     The leading index growth rate has slowed from 1.11% above trend in February

to 0.10% below trend in July, a deterioration of 1.21 percentage points. Two

components have accounted for almost all of the reversal: commodity prices

(-1.63 points) and yield spread (-0.43 points). After surging 42% over the

second half of 2016, Australian commodity prices have fallen 16% in the first

seven months of 2017 in Australian dollar terms.

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

forecasts for the economy in the latest quarterly Statement on Monetary Policy

published last Friday are on the optimistic side. According to Westpac, the

RBA's forecast suggest above-trend growth of 3.25% in 2018 whereas Westpac's own

forecast is 2.5% which is below the estimated trend rate of 2.75%. 

     COMMENTS: Westpac chief economist Bill Evans said in the minutes of the

August board meeting published Tuesday the RBA sounded less confident about

achieving its inflation target. 

     "We concur and, consistent with below trend growth, expect that rates will

remain on hold through 2018," Evans said.

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

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