For the ninth month in a row, the Westpac-Melbourne Institute’s Leading Index has returned a result above zero. This implies above-trend growth for the Australian economy. While the index dropped from 1.11% In March to 0.92% in April, any number above zero implies Australia’s GDP growth in the next three to nine months will be higher than trend. Trend growth was once taken to mean around 3% but recently the RBA and private sector economists have been suggesting it may mean 2.75%.
In the May Statement on Monetary Policy, the RBA’s latest forecast for GDP growth in calendar 2017 was in the range 2.5%-3.5%, or 3% if using the midpoint. Westpac‘s chief economist Bill Evans is in broad agreement with the RBA’s 2017 forecast. “Westpac concurs with the Bank’s forecast of 3% growth through 2017. That is above trend and consistent with the positive leads from the Index over the last nine months.” However, the RBA forecast 3.25% growth in 2018, whereas the Westpac economist expects economic growth to slow. He expects house construction and export growth to fall back while the prices of exports are also likely to fall in his view. As such, Westpac expects official rates to be hold though 2017 and into 2018.