Leading indicators getting a bit too giddy

While the fourth-quarter inflation figures received most of the attention in the last week, growth in the Westpac leading index reached a three-year high and it is consistent with a sharp rebound in GDP growth in Australia in the coming months. We expect a more modest rebound this year, however, as key tailwinds that have propped up growth over the past few years begin to fade. oth the Westpac leading index and the Ai Group composite index are consistent with a rebound in GDP growth from 1.8% currently to 4.0% in the near-term. Even excluding the effects of the rises in commodity prices and local equity markets, the Westpac index still points to GDP growth of 3.0%. But with the tailwind from dwellings investment set to fade, and the outlook for consumption and business investment modest at best, we expect growth of closer to 2.0% this year.