Summary: Leading index falls back in December; follows four consecutive rises; signals “healthy above-trend growth”; reading implies annual GDP growth to rise to +7.00% during first half of 2021; November SoMP GDP forecasts lower than private sector forecasts.
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 and fourth quarters were markedly higher.
The latest reading of the six month annualised growth rate of the indicator fell in December after four consecutive increases, from November’s revised figure of +4.94% to +4.18%
“While we may have seen the peak in the growth rate of the Index it is still signalling healthy above-trend growth for the Australian economy in the first half of 2021,” 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.
