The Australian economy continues to face patchy momentum, as indicated by the Westpac-Melbourne Institute Leading Index. The six-month annualized growth rate of the index fell from -0.05% in April to -0.24% in May. This decline is attributed to several factors, including higher interest rates, lower commodity prices, and ongoing difficulties in the domestic homebuilding sector. As a result, the index suggests that economic growth will track slightly below-trend in the second half of 2024 and early 2025. However, Westpac expects GDP growth to improve from 0.8% in the first half of the year to 2.2% over the next three quarters. Despite these challenges, the Reserve Bank of Australia is anticipated to keep the official cash rate unchanged at its next meeting in August.
In contrast to the overall economic outlook, Australian retail trade performed better than expected in May. According to the Australian Bureau of Statistics, retail trade rose 0.6% in May, surpassing forecasts. Year-on-year, retail trade was up 1.7%, compared to 1.3% in April. The strong performance was attributed to shoppers taking advantage of early end-of-financial year promotions and sales events. These figures indicate that consumer spending remains resilient despite the challenges faced by the broader economy.
Looking ahead, the central bank is closely monitoring the economy for signs of a slowdown as it aims to bring inflation back to target. The Australian Bureau of Statistics is scheduled to release employment data on July 18, which will provide further insights into the state of the labor market. However, the market's focus will be on the key quarterly consumer price index, which will be published on July 31, ahead of the Reserve Bank of Australia's next meeting on August 6.
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