Australia's leading index growth slowed in May largely due to the deterioration in consumer sentiment, data released by Westpac showed on Wednesday. Nonetheless, the index signaled above trend growth for this year.
The six-month annualized growth rate in the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, fell to 0.58 percent in May from 1.09 percent in April. Despite the fall, the overall growth rate in the leading Index is still indicating above trend growth momentum heading into the three to nine month 'window'.
The main components driving the improvement in the leading index over the first half of 2022 have been a lift in commodity prices in AUD terms, a widening yield spread, US industrial production and dwelling approvals. These were partially offset by sharp falls in sentiment and a sell-off in equity market.
Westpac said the consumer spending will continue to benefit from post-Covid reopening. But the decline in consumer confidence due to rising interest rate and falling house prices, will take its toll on spending later this year and into 2023.
Westpac Chief Economist Bill Evans said the Reserve Bank of Australia will decide to follow the 50 basis point rate increase in June with a further 50 basis point increase in July. Given the tight labor market and rising inflation further monetary tightening can be expected through 2022.
