Bill Evans, analyst at Westpac, notes that the six month annualised growth rate in the Westpac- Melbourne Institute Leading Index for Australian economy, fell from -0.78% in October to -0.81% in November.
Key Quotes
“The Leading Index growth rate has now been below trend for the last twelve months and continues to point to weak economic momentum carrying well into 2020.”
“This signal from the Index is certainly consistent with Westpac’s own growth forecasts. We expect GDP growth in 2020 to be stuck at 2.1% which compares with trend growth of 2.75%.That modest growth pace reflects a flat consumer; further contraction in residential construction and disappointing business investment.”
“The Leading Index growth rate has deteriorated over the last six months from -0.17% in June to -0.81% in November. The main components driving the 0.64ppt shift have been a sell-off in commodity prices (-0.65ppts) and a more mixed performance on the Australian share market (-0.28ppts).”
“The Reserve Bank Board next meets on February 4. The minutes of the December Board meeting strengthen our conviction that the Board is likely to ease rates further at the February meeting. The flow of economic data over the next six weeks will be critical to that decision, particularly updates around the labour market, retail sales and confidence.”
“Given our forecasts, Westpac is comfortable with our current view that the RBA will reduce the cash rate from 0.75% to 0.50% at the February Board meeting.”
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