MNI Australia Leading Index Signals Slowing Growth Ahead

By Sophia Rodrigues

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

published Wednesday.

                                             August   July

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

Leading Index                                 97.93  97.87

6-Mo Annualized Deviation From Trend, % pts   -0.02  +0.50

     FACTORS: The leading index rose in August but pointed to a slightly below

trend growth and overall a slowing in growth momentum through the second half of

2018 and into 2019. From a growth signal averaging at 0.89% above trend from

October last year to April this year, the growth rate has averaged just 0.1% in

the four months since. The earlier readings were consistent with the strong,

above trend momentum in the first half of 2018 but the weaker reads in recent

months point to a slower growth pace ahead.

     The main reasons for a slowdown in the leading index growth rate over the

last six months are commodity price index that detracted 0.3 percentage point,

U.S. industrial production (-0.17 point), dwelling approvals (-0.18 point),

yield spread (-0.14 point), the Westpac-MI unemployment expectations index

(-0.04 point) and the Westpac-MI consumer sentiment expectations index (-0.06

point). 

     TAKEAWAY: The signal from leading index is inconsistent with the Reserve

Bank of Australia's expectation that the economy will record above-trend growth

momentum in the next few years. Westpac's expectation is that growth would slow

to 2.5% in the second half of 2018, and maintain this slower pace through 2019

at around 2.7%. 

     COMMENTS: Westpac's chief economist Bill Evans confirms his view that the

RBA cash rate will remain on hold at 1.5% through 2018, 2019 and 2020.

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

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