Matthew Hassan, analyst at Westpac, notes that the six month annualised growth rate in the Westpac– Melbourne Institute Leading Index for the Australian economy, rose slightly from –0.49% in April to –0.45% in May.
“The Index growth rate has been consistently negative over the last six months, a clear signal that economic growth is likely to be remain below trend through the rest of 2019. Figures released earlier this month showed the slowdown over the second half of 2018 extended into the first quarter of 2019 with annual GDP growth slipping to 1.8%yr, well below ‘trend’ of 2.75%yr and the slowest pace since the GFC a decade ago.”
“The Leading Index picked the slowdown well with a sharp deceleration in the Index growth rate beginning in the second quarter of last year, then swinging into negative late in the year, a reading consistent with the sub-trend annual growth now being reported.”
“The May reading shows little change since then and points to this sub-trend pace continuing well into the second half of 2019. Westpac expects GDP growth to remain subdued at 2.2%yr for the full calendar year.”
“The Index growth rate has seen a marginal deterioration over the year to date, from –0.37% in December to –0.45% in May. Worsening global conditions have been a key driver of that shift.”
“The labour market will remain a key focus for the policy profile. Westpac’s more downbeat view on this front points to a further 25bp cut in November taking the cash rate to 0.75%.”