2017 is shaping up as a year in which Australian GDP growth is likely to be around 3.0% if the Westpac-Melbourne Institute’s Leading Index maintains its record of being a reliable indicator. According to Westpac, the Leading Index indicates the likely pace of economic activity relative to trend three to nine months into the future.
This latest April reading rose to 1.17% from its March reading of 1.14%, which for all intents and purposes is a stable reading but it is also the eight month in a row where the index has been at or above trend (indicated by a zero reading). Trend growth was once taken to mean around 3% but recently the RBA and private sector economists have been suggesting it may mean 2.75%. As the index relates to growth rates above trend, GDP for the can be expected to be in excess of 2.75% unless the index deteriorates as the year goes on.
3.0% is in the mid-point of the RBA’s forecast range of 2.5%-3.5% growth for 2017 which it stated in its February Statement on Monetary Policy (SoMP). Westpac’s Bill Evans, thinks GDP growth is likely to be 3% through 2017. “…the ongoing positive signal from the Index gives us some comfort that we can expect solid growth in the first half of 2017….Westpac concurs with the Bank’s current forecast of 3% growth through 2017.”