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. However, its recent low was not as negative as the one reached in February and the latest reading from the index is back into positive territory.
The six-month annualised growth rate of the indicator increased again, this time from June’s revised figure of -0.09% to +0.52% in July. 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 or early 2020.
Westpac chief economist Bill Evans described the result as the “first above-trend read since November” and he said further readings of this sort “would be consistent with the economy growing around trend for the last three or four months of 2019 and well into the first half of 2020.” However, he said recent developments in equity and commodity markets and an inverted yield curve “point to a likely softer August reading for the Index. “