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 trended lower through 2018 and 2019. Readings from the early months of 2020 indicate a continuation of that downtrend.
The latest six month annualised growth rate of the indicator has fallen from January’s revised figure of –0.49% to -0.96% in February. After a brief improvement at the end of 2019, February was the second consecutive month in which readings have deteriorated.
Westpac chief economist Bill Evans said, “The Index growth rate has been running consistently below trend for fifteen months. That signal is indicative that the Australian economy is entering this extremely difficult coronavirus period with insipid momentum and is therefore more vulnerable to the shock.”
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 1.75% in the middle of 2020.