CHART: Westpac Leading Index Falls Slightly, Putting GDP Growth At 2.4%

Westpac Melbourne Institute latest Leading Index of Economic Activity has fallen slightly, putting GDP growth in the year to June 2014 at 2.4%.

This month’s index reading accounts for a 1.95% fall in the ASX 200, 1.8% fall in dwelling approvals, 5.14% fall in customer sentiment, 0.71% fall in hours worked and 4.52% rise in unemployment expectations.

Meanwhile, US industrial production rose by 1.12%, commodity prices by 1.47% in AUD terms and the yield spread by 0.15 ppts.

The November leading index came in at 1.11% above trend, compared to 1.24% in October.

Westpac’s GDP forecast of 2.4% is slightly below that of the Reserve Bank and Treasury, which put real GDP growth at 2.5%.

According to Westpac chief economist Bill Evans:

Westpac is expecting growth over the year to June 2014 of 2.4% while the Reserve Bank recently released its own growth forecasts to June at 2.5%. Both forecasts take into account a significant drag from the downturn in mining investment.

It is not clear how this large supply side effect can be captured in a Leading Index. As such we should interpret the signal from the Leading Index as pointing to a solid lift in the growth momentum of the non mining sector.

That is a significant observation and one that will give the authorities some encouragement that their plans to rebalance growth to accommodate the slowdown in mining are paying dividends.

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