Leading indicator points to Australian growth slow down

The Westpac-Melbourne Institute leading index fell in August to -1.14%, from July’s reading of -0.40%. The index indicates the likely pace of economic activity 3-9 months in the future and while the first four months of 2015 indicated above trend growth was likely, the last four months showed a deterioration to the current index value -1.14%. Westpac chief economist, Bill Evans said, “Today’s print points to a likely ‘below trend’ start to next year.” An Australian economy growing at less than trend, currently seen as 3.0%, is in line with the chief economist’s view of the economy and his expectation of 2.7% growth in 2016, but this is at odds with the RBA’s 3.0% 2016 growth forecast. In any case he thinks the RBA won’t act on cash rates for some time. “At Westpac we do not expect any further rate movements before 2017.”