Australia Leading Index Continues To Signal Below Trend Growth

Australia’s leading index continued to suggest below-trend growth for the coming three to nine months largely due to the lagged effects of rising interest rates, survey data from Westpac showed Wednesday.

The six-month annualized growth rate in the Westpac-Melbourne Institute Leading Index rose slightly to -0.94 percent in February from -1.04 percent in January.

The rate has remained negative for the seventh consecutive month, pointing to below-trend growth this year. Westpac had earlier forecast that the economy will grow only 1.0 percent in 2023.

The slowdown in growth reflects the lagged effects of rising interest rates, a deep shock to real wages, a bottoming out of the savings rate and easing house prices.

Westpac Chief Economist Bill Evans said the recent turmoil in the global banking system is unlikely to significantly impact Australia’s financial system but this will be a further headwind for major advanced economies. This, in turn, will have indirect implications for Australia’s growth prospects.

As the impact of these developments is likely to extend into 2024, the economy is forecast to grow around 1.5 percent. The leading index is set to continue recording negative prints through much of this year, Westpac noted.

The next monetary policy announcement is due on April 4. Westpac expects the Reserve Bank board to pause the rate hike for the first time since it started raising rates in May last year.

Nonetheless, Westpac said the pause in April is unlikely to mark the end of the tightening cycle.

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