Lead Index Points To Below Trend Growth But Better Momentum

The January Westpac leading index fell 0.08% m/m after -0.03%. The 6-month annualised rate leads detrended growth by 3 to 9 months and apart from a brief shift into positive territory in November it has been negative since August 2022 but momentum has improved. This measure deteriorated to -0.25% in January from -0.01% signalling that growth is likely to be below trend for most of this year. Hours worked was the main drag on the 6-month rate with commodity prices the largest offset.

• Westpac is forecasting growth to improve in H1 2024 to 1.3% annualised after 0.8% in H2 2023. It estimates trend at 2.5%.
• While January’s 6-month rate was still negative, it was in line with H2 2023’s but is a significant improvement on H1’s -0.8%. But Westpac warns that this is not a “new cyclical upswing” as the components are mixed and the outlook is highly uncertain.