Leading indicators of the Australian economy have been providing mixed messages recently and the latest one, the Westpac-Melbourne Institute leading index, is no different. The index rose from -1.51% in March to -1.08% in April and given the index suggests the likely pace of economic activity 3-9 months in the future, this latest reading implies the Australian economy is likely to grow at less than the trend rate over 2016. Trend growth was once taken to mean around 3% but recently the RBA and private sector economists have been suggesting it may mean a lower figure.
Westpac chief economist, Bill Evans said, “With trend growth generally assessed as 2.75% for Australia the index is sending a more negative signal than both Westpac and official forecasts.” Westpac is currently expecting another rate cut from the RBA but not until the August meeting because the June quarter CPI report will not be available until July. “We expect that further action will be required at the August meeting once more information about the inflation outlook is available following the release of the June quarter Inflation Report.”