Westpac Leading Index Dips: Here's What Could Drag It Below Trend

The Australian economic outlook fell slightly in January, with forecasters expecting growth to slow between April and October, while remaining above trend.

The Westpac Melbourne Institute Leading Index grew at 0.46% last month, down from 1.09% in December.

Westpac chief economist Bill Evans pinned the fall on consumer expectations, share prices, unemployment expectations, and dwelling approvals.

While the index pointed to above-trend growth, Evans said Westpac expected below-trend growth of 2.6% in 2014. Here’s why:

Some forces which Westpac sees as threatening the benign above trend growth outlook in 2015 are apparent in some of the components of the Leading Index that have explained the recent softening in the Index – consumers becoming more nervous about the future; ongoing anxiety around job security; and the prospect of higher rates.

Markets are never comfortable with a benign ‘no change’ in rates scenario and may well push the prospect of rate hikes even harder. We are more concerned about the growth outlook and still see the prospect of rate cuts being more likely than the current expected rate hike scenario.

Now read: The Jobs Outlook Is Keeping The Reserve Bank Cautious On Australia’s Recovery

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