Growth to slow next year

Rod Myer
Dec 17, 2014, updated Dec 17, 2014

Economic growth is likely to slow in the first half of 2015 with the Westpac Melbourne Institute leading index for November falling further into negative territory signalling a weakening in the economy.

The index, which measures whether grow is above or below trend, shows that the economy has fallen from 0.15 points below trend in October to a negative 0.47 points.

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Westpac’s Chief Economist Bill Evans observed that “this is the tenth consecutive month where the growth rate in the index has been below trend.”

That losing sequence followed thirteen consecutive months of above trend growth to February this year and it indicates that “we can expect growth in the Australian economy to stay below trend in the final quarter of 2014 and well into 2015,” Mr Evans said.

Westpac has revised down its growth forecasts for the next three quarters with GDP growth forecasts being cut from 3.2% to 2.7% which pushes it from trend growth to markedly below trend.

Demand forecasts from December 2014 to June 2015 have been cut from two per cent to 1.2 per cent.

“We still expect that growth momentum in the second half of 2015 will be around 3.2% reflecting the impact of rate cuts in the first half of 2015; an improving world economy including some lift from a modest improvement in the terms of trade, and the benefits of a much lower AUD than had previously been factored into our thinking,” Mr Evans said.

Westpac still wants to see an official rate cut early next year.