Westpac: the economy has 'suffered a loss of momentum' and the case for lower rates is strengthened

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The Westpac-Melbourne Institute Leading Index for May shows a decline from +0.19 in April to -0.02 in May.

That may not sound like much, but Westpac senior economist Matthew Hassan said it indicates the Australian economy “appears to have suffered a loss of momentum. After a promising start with four months of above trend reads, the Leading Index growth rate has effectively dropped back to zero in May indicating a more subdued growth pulse in line with long run averages.”

It’s still a better outcome than 2014 when the index was “stuck firmly in negative territory and an average growth rate of –0.54%.” But, Hassan says “the stalling momentum mid-year is a concern given the recent reduction in interest rates and hopes that this would help generate a more convincing upswing in Australia’s consumer and non-mining business sectors.”

That means “the case for even lower rates is strengthening.”

But Hassan says the RBA is “unlikely to be acted on unless there is clear evidence that growth is likely to significantly undershoot the Bank’s forecasts for 2016.”

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