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Leading Index points to recession

by Staff Reporter8 minute read
The Adviser

The latest Westpac-Melbourne Institute Leading Index of economic activity has recorded a further disintegration and warned of a likely recession.

The Index, which indicates the expected pace of future economic activity, fell to -1.2 per cent in December – well below its long term trend of 3.5 per cent and the second consecutive negative reading.

According to Westpac senior economist Matthew Hassan, two consecutive months of negative territory has been a useful indication of a likely recession in the past.

“Australia has experienced three recessions since 1965,” he said yesterday.

“On each occasion we saw the growth rate in the Leading Index turn negative about a year before a recession was confirmed.”

Mr Hassan said there had been only two occasions were the economy avoided a recession after the Index slipped into negative territory but these were still notably weak economic times.

These bleak forecasts are considerably different from those accompanying the Index’s release just two months ago and point to a deteriorating economic outlook.

In December, the October Index fell to 0.6 per cent, and Westpac chief economist Bill Evans said weak, albeit positive growth was on the outlook, rather than a recession.

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