Third consecutive decline in growth and largest negative deviation since 2011.
Over the last six months, growth in the Index has slowed from 1.04% below trend to 1.24% below trend, according to the latest Westpac-Melbourne Institute Leading Index report. Yield spread, US industrial production, AUD value of commodity prices and dwelling approvals have all been cited as contributing factors to the decline.
Westpac chief economist, Bill Evans (pictured) said, “Disappointing results continue. The Index has now been growing below trend for the last nine months. It continues to signal that growth in the Australian economy in the first half of 2016 will be below trend. Today’s print represents the largest negative deviation we have seen since the second half of 2011.”
“The picture of the economy which is encapsulated in the Index neatly summarises the key issues for policy. International factors are pointing to downward pressure on rates whereas domestic factors, partly due to the boost to the economy from the low Australian dollar and low interest rates, are sending positive signals. That interaction over the course of 2016 will determine whether markets are correct,” he added.
The Reserve Bank board next meets on March 1 and Westpac expects that the Board will decide to keep rates on hold.
“We also expect that rates will be on hold for the remainder of 2016. Markets are confidently expecting at least one rate cut by the RBA through 2016,” Evans said.
The Index is a summary measure. It includes information from a number of domestic markets (namely financial, housing and labour), information about international activity together with information from consumer expectations about activity and unemployment.