Australian economic growth likely to be below trend in H1 2016
17 February 2016, 10:25
0
31
The Westpac-Melbourne Institute Leading Index for January dropped to -1.24% from December's -1.00%. For the past nine months the index has been growing below trend, signalling that the Australian economic growth will be below trend in H1 2016. The January's index is the largest negative deviation since H2 2011. The components of the index are easing its growth, whereas domestic sourced components, mainly the labor market and confidence, are giving a countering boost.
The Reserve Bank of Australia and the Treasury are both examining trend growth at 2.75%. Westpac's current 2016 projection entails an annual growth pace n H1 2016 of 2.75%. The Leading Index is increasingly signalling towards the downside risks to the forecast.
"The Government's near term growth forecasts (2015/16 and 2016/17) are slightly weaker than our own forecasts after it revised down its May Budget forecasts following the Mid-Year Economic and Fiscal Outlook to 2.5% in 2015/16 and 2.75% in 2016/17. Westpac is expecting growth of 2.8% in 2015/16 and 2.7% in 2016/17", says Westpac.
The RBA's projections are for a 2%-3% growth for 2015/2016 and 2.5%-3.5% for 2016/2017. The central bank's GDP growth forecast through to June 2016 of 2%-3% suggests that the bank anticipates growth to expand at an annualised rate of 2.5% in H1 2016 that is below trend. The index in the last six months has eased from 1.04% below trend to 1.24% below trend.
The weakness from the AUD value of commodity prices has grown marginally with decline in price mostly countered by depreciation of the AUD. Moreover, dwelling approvals have been a slightly bigger drag. The Westpac-MI Consumer Sentiment Expectations Index, the Westpac MI Unemployment Expectations Index and aggregate monthly hours worked partly countered the impact of the components.
Meanwhile, the Reserve Bank board is likely to keep rates unchanged in its upcoming meeting in March and also for the remainder of 2016. However, markets expect the central bank to lower rate at least once through 2016.
