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. Recent months’ figures gave some sign of stabilising and the latest reading indicates GDP may be about to revert back to the trend growth rate just as the Reserve Bank has cut the cash rate to a historic low.
The six-month annualised growth rate of the indicator recovered from May’s revised figure of -0.47% to -0.02% in June. 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 to 6 months, so theoretically the current reading represents an annualised GDP growth rate of around 2.75% in late-2019.
