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Australia's Leading Index Signals Recession

Australia's leading index rose in May from the previous month, but it remained in deep negative territory consistent with an economic recession, data from the Westpac showed Wednesday.

The Westpac- Melbourne Institute Leading Index which indicates the likely pace of economic activity relative to trend three to nine months into the future, rose to -4.79 percent in May from -5.08 percent in April.

The indicator growth rate has weakened sharply over the last six months, dropping to the -4.79 percent in May from -0.28 percent in December.

Two components account for the bulk of the slump were US industrial production and aggregate monthly hours worked. Both have been directly impacted by the Covid-19 health emergency and associated shutdowns.

Other components have seen net improvements over the last six months, adding to the index growth rate. The most notable positive contributions have been from commodity prices, measured in AUD terms and the yield spread and consumer unemployment expectations.

Bill Evans, chief economist at Westpac said the central bank policy is set to remain firmly on hold for the foreseeable future.

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