Westpac and the Melbourne Institute describe their Leading Index as a composite measure which attempts to estimate the likely pace of economic activity relative to trend in Australia. The index combines certain economic variables which are thought to lead changes in economic growth into a single variable. This variable is claimed to be a reliable cyclical indicator for the Australian economy and an indicator of swings in Australia’s overall economic activity.
The six-month annualised growth rate of the indicator fell back from a revised September figure of +0.41% to 0.08% in October. These figures represent rates relative to trend-GDP growth, which is generally thought to be around 2.75% per annum for Australia. The Index is said to lead GDP by 3 months to 6 months, so theoretically the current reading represents an annualised GDP growth rate of just above 2.75% in the December and/or March quarters.
Westpac chief economist Bill Evans said, “With this latest slowdown, the Index growth rate continues to point to slowing momentum into the new year.”