Australia’s leading index signaled a sustained period of below trend growth as the economy faces headwinds from the lagged monetary policy tightening, falling wages and weak property market among other things, Westpac said Wednesday.
The six-month annualized growth rate in the Westpac-Melbourne Institute Leading Index fell to -0.92 percent in November from -0.84 percent in October.
The index that signals the likely pace of economic activity relative to trend three to nine months into the future has remained negative for the fourth straight month.
The persistence of the negative rate confirmed a sustained below trend outlook for the economy in 2023. Westpac expects only 1 percent growth over the year with growth at zero in the second half of 2023.
Westpac observed that the accumulated impact of the central bank’s policy tightening will act as a major economic headwind. Declines in real wages, deterioration in housing market, uncertain asset markets and a difficult year for the global economy will also impact the economy.
The Leading Index growth rate has seen a sharp turnaround over the past six months. Two components that account for the 1.57 percentage point swing were the yield spread and commodity prices. Other components had no net effect on the index growth rate since May.
Bill Evans, chief economist at Westpac expects the Reserve Bank of Australia to opt for a further 25 basis point increase at the February meeting given the outlook for wages, inflation and economic growth. The Reserve Bank Board next meets on February 7.
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