Summary: Leading index increases for fourth consecutive month; strongest growth rate in sixty years; reading implies annual GDP growth to rise to +7.00% in 2021; GDP forecasts raised since November SoMP.
Westpac and the Melbourne Institute describe their Leading Index as a composite measure which attempts to estimate the likely pace of Australian economic growth over the next three to six months. After reaching a peak in early 2018, the index trended lower through 2018, 2019 and the early months of 2020 before plunging to recessionary levels in the second quarter. Readings from the third quarter were markedly higher and more recent figures have continued to rise.
The latest reading of the six month annualised growth rate of the indicator increased for a fourth consecutive month, from October’s revised figure of +3.77% to +4.38% in November.
“This is the strongest growth rate in the sixty year history of the measure. That said, the gains still largely reflect the severity of the preceding contraction which saw the Index growth rate drop to an extreme low of –5.5% in April,” said Westpac Chief Economist Bill Evans.
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 7.0% in the first or second quarters of 2021.