Westpac and the Melbourne Institute describe their Leading Index as a composite measure which attempts to estimate the likely pace of Australian economic activity over the next three to six months. After reaching a peak in early 2018, the index headed lower through 2018 and most of 2019. Recently, it has staged a modest recovery.
The latest six month annualised growth rate of the indicator has increased from November’s revised figure of –0.62% to -0.32% in December. The current reading represents the third consecutive reading in which the index has improved, although it still remains in sub-trend territory.
Westpac chief economist Bill Evans restated his view from late last year. “The latest update points to weak economic momentum continuing in the first half of 2020 and is consistent with Westpac’s view that growth will remain around a 2% pace in the first half of 2020.”
Index 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 three to six months, so theoretically the current reading represents an annualised GDP growth rate of around 2.40% in mid-2020.