Australia Westpac-MI Leading Index Signals Below-Trend GDP

--RBA Growth Forecasts Appear Optimistic Vs Leading Index Signal

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

published Wednesday.

                                                         August   July

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

Leading Index                                             97.34  97.42

6-Mo Annualized Deviation From Trend, percentage points   -0.19  -0.04

     FACTORS: The index fell in August and pointed to below-trend growth

momentum for a third consecutive month. This is a turnaround from the positive,

above-trend readings at the start of the year. 

     The leading index growth rate has slowed from 1.13% above trend in March to

0.19% below trend in August -- a deterioration of 1.32 percentage points. Two

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

(-1.31 points) and yield spread (-0.43 points). After rising 40% over the second

half of 2016 Australia commodity prices have fallen 12% to date this year 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 month 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 this year and in 2018. Westpac's view shows an unchanged cash

rate of 1.5% until at least June 2019. 

     "With macroprudential policies slowing housing markets the need to raise

interest rates in 2018 seems unnecessary. Westpac continues to expect rates will

remain on hold in 2018," Evans said.

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

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