Westpac bank's leading index for the Australian economy

  • Prior revised to +0.43% (from +0.44%)
  • The six month annualised growth rate in the WestpacMelbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, fell from 1.36% in December to 1.30% in January.

more to come

.... OK, here it is ... I was distracted by Mester's comments

Remarks from Westpac:

  • the sixth consecutive month where the growth rate in the Index is at or above trend
  • That followed a period of fifteen consecutive months where the growth rate had been below trend
  • That sustained period of below trend growth in the series had been pointing to the weakness we have seen in the economy in the September quarter (although no lead indicator could have prepared us for a negative growth print)
  • However, the run of six consecutive above or at trend readings is signalling a better outlook for the first half of 2017
  • The December and January results represent a very strong rebound
  • Westpac concurs with the forecast of the Reserve Bank of 3% growth through 2017
  • Potential complications for this growth rate lie with the Australian dollar
  • Although the recent strength in the Australian dollar is entirely understandable given the recent surge in commodity prices, the intensity and timing of any boost to spending from the rising terms of trade is always uncertain
  • On the other hand a higher Australian dollar can be expected to challenge services and manufacturing export growth
  • For now our forecasts for commodity prices and the Australian dollar envisage that we are near the peaks although we do not expect much correction to commodity prices or the Australian dollar through the remainder of 2017.

WPAC's RBA outlook:

  • The Reserve Bank Board meets on March 7. Yesterday's Board minutes for the February meeting confirmed the Board's view that the economy is likely to grow by around 3% in 2017 and 2018. The assessment around the outlook for consumption growth was a little more subdued. However buoyant housing markets in both Sydney and Melbourne are continuing to weigh on their considerations. In addition a boost to activity and global confidence has brightened the near term outlook. Inflation is assessed to be gradually moving towards the Bank's target zone while business investment prospects are improving.
  • Westpac expects that cash rate will remain on hold through 2017 and 2018.