Westpac: Australia's growth outlook is improving, although it may not last

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The outlook for Australian economic growth over the next three to nine months is looking brighter.

So says the latest leading index for April released by Westpac, with the six-month annualised index jumping to +0.43% from -0.02% in March.

A reading above 0 indicates the likelihood of above trend growth.

Here’s Westpac’s senior economist Matthew Hassan’s take on recent developments in the index.

“The Leading Index growth rate has been above trend for three of the first four months in 2015. That compares favourably to 11 out of 12 months in 2014 that were materially below trend. However, at 0.43%, the growth rate in April is still well below the 0.78% average pace in 2013 and lacklustre by historical standards.

The Index growth rate has now swung from 0.43% below trend in November 2014 to 0.43% above trend in April. Nearly all components have contributed to the 0.86ppt turnaround although in some cases this has been through a reduced drag rather than an outright positive contribution.

While most components contributed to the increase in the index, Hassan expresses reservations on whether the above-trend reading can be sustained. He points to one-off boosts in domestic consumer sentiment from recent RBA rate cuts and the federal budget as reasons to remain cautious.

He also notes that while the index is now above-trend, the outlook for economic growth “is still not particularly strong”.

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