Westpac and the Melbourne Institute describe their Leading Index as a composite measure which attempts to estimate the likely pace of Australian economic activity relative to trend over the next three to six months. Since its peak in early 2018, the index had progressively headed lower through 2018 and into 2019. The latest figures have stabilised but they still indicate GDP is likely to remain at a sub-trend pace which will provide an incentive for the RBA to further reduce the cash rate.
The six-month annualised growth rate of the indicator fell back from April’s revised figure of -0.49% to -0.45% in May. These figures represent rates relative to trend-GDP growth, which is generally thought to be around 2.75% per annum. 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 around 2.2% in late-2019.
