24 Apr '25
(Fibre2Fashion News Desk (SG): Australia's six-month annualised growth rate in the Westpac–Melbourne Institute Leading Index slowed to 0.6 per cent in March, down from 0.9 per cent in February. The index reflects the expected pace of economic activity relative to the trend three to nine months ahead.
The index continues to indicate growth above the trend, but the recent softening signifies a significant shift.
The Index is only beginning to reflect the effects of the trade policy disruptions that intensified following US President Donald Trump's 'reciprocal' tariff announcement on April 2.
Insights
Australia's six-month annualised growth rate in the Westpac-Melbourne Institute Leading Index slowed to 0.6 per cent in March, down from 0.9 per cent in February, reflecting trade policy disruptions and market sentiment.
While the Australian economy faces manageable tariff shocks, growth is expected to slow to 1.9 per cent in 2025.
Financial market developments have contributed to the slowdown.
The situation is uncertain and there are other factors at play but some further softening in the growth pulse looks likely in the months ahead, Melbourne Institute of Applied Economic and Social Research and Westpac said in a joint press release.
“At this stage, the tariff shock to the Australian economy should still be relatively small and manageable. Westpac expects growth to track a slower recovery, lifting to 1.9 per cent in 2025 revised down from a previously forecast 2.2 per cent. However, risks are to the downside. The Leading Index will continue to be an important early gauge of how momentum is shifting,” said Matt Hassan, head of Australian macro forecasting at Westpac Economics.
The component detail shows the slowdown to date has been centred on financial market and sentiment developments. The Leading Index growth rate has lifted from negative 0.24 per cent in September last year to 0.63 per cent currently.
Four of the eight components have driven the 0.87 percentage points (ppt) improvement: commodity prices (measured in Australian dollar terms) adding 0.42 ppts; a widening yield spread adding a further 0.34 ppts; improving US industrial production adding a further 0.15 ppts and improving consumer expectations for jobs adding another 0.12 ppts.
The commodity price component's improvement has primarily been driven by a decline in the Australian dollar, which depreciated by 6.5 cents (¢) against the US dollar between September and late March. Notably, despite a further dip of 3.5¢ at one point, the Australian dollar has since recovered and is now slightly above its March-end level. However, these gains have been partially offset by a correction in equity markets and a slowdown in the recovery of consumer sentiment.
The S&P/ASX200 has reduced the headline growth rate by 0.18 percentage points since September, while the Westpac-Melbourne Institute Consumer Expectations Index has contributed an additional 0.1 ppt decline.
Meanwhile, both drags are at risk of intensifying in the months ahead. Share markets plunged after the US tariff announcement on April 2 and are still down on March levels despite a solid rally later in the week following the announcement of a 90-day pause on tariff increases above 10 per cent for countries other than China.
Similarly, the April update on consumer sentiment showed sharply weaker reads over the course of the survey week that suggest the May survey, which will be run before the next Reserve Bank of Australia (RBA) meeting, is coming from a considerably weaker starting point, added the release.
(Source: www.fibre2fashion.com)