AUSTRALIA DATA: Gradual Growth Recovery, Trade Uncertainty A Risk
The Westpac leading index for February rose 0.07% m/m after 0.1% bringing the 6-month annualised rate to 0.8% from 0.6%, the highest in almost two years. The 6-month rate leads detrended growth by 3 to 9 months, thus it is signalling that at this point growth should gradually improve over the year consistent with RBA expectations.
- Westpac is forecasting GDP growth to rise slowly over 2025 to 2.2% y/y in Q4 after 1.3% in Q4 2024. It also expects the RBA to be on hold in April but a further moderation in inflation (Q1 CPI out on 30 April) will allow it to cut again on May 20.
- February’s 6-month increase was driven by the strong improvement in Westpac consumer confidence and the unemployment expectations component. The yield spread made the largest positive contribution. All components were positive except the ASX and aggregate hours worked, which were slightly negative.
- Westpac notes that just over a third of the improvement in the 6-month rate since August was due to AUD commodity prices and much of that was due to the depreciation in the Aussie dollar.
- The sell-off in the ASX, largely due to uncertainty around US trade policy, weighed on the index in February and is likely to do the same in March. Westpac believes that with more tariffs likely, reciprocal measures are due April 2, they are “likely to become a more significant dampener on the growth pulse in Australia”.
Australia Westpac leading index vs GDP %
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JAPAN DATA: Q4 GDP Growth Above Expectations, Consumer Spending Still Slows
Japan's preliminary Q4 GDP was above market expectations. Q3 also saw positive revisions. The q/q annualized outcome was +2.8% versus 1.1% forecast. In q/q terms this was 0.7% (0.3% was forecast, while Q3 was revised up to 0.4% from 0.3% originally reported). In nominal terms, GDP was up 1.3%, also above the 1.2% forecast, with Q3 revised a touch higher. The GDP deflator was 2.8%y/y, in line with market forecasts.
- The detail showed positive surprises for consumption +0.1%, versus -0.3% forecast (Q3 was a 0.7% rise) and net exports +0.7%ppts contribution to growth (+0.4ppt was forecast). Business spending rose 0.5%, which was below forecasts but still above the negative Q3 outcome.
- Domestic and private demand were still down in q/q terms after firm rises through Q2/Q3 of 2024. Both metrics are still up in y/y terms.
- The GDP deflator was up 0.6% q/q, accelerating from the 0.3% gain in Q3.
- The data suggest a fairly resilient economic growth backdrop. It continues to suggest a bias towards further policy adjustments from the BoJ. The slowdown in consumer spending, whilst not as weak as feared, will be a watch point though.
Fig 1: Japan Recorded Positive Growth For 3 Straight Quarters
Source: MNI - Market News/Bloomberg
STIR: RBA Dated OIS Pricing Slightly Firmer Ahead Of Tomorrow’s RBA Decision
RBA-dated OIS pricing is flat to 2bps firmer across 2025 meetings today, led by late-2025 contracts, ahead of tomorrow’s RBA Policy Decision.
- A 25bp rate cut in April remains more than fully priced (118%), while the probability of a cut tomorrow stands at 83%, based on an effective cash rate of 4.34%.
- OIS pricing is mixed compared to pre-Q4 CPI levels on 24 January, with the Aug-25 meeting up 15bps since early February.
- Historically, it would be highly unusual for the RBA to diverge from market expectations, particularly given its lack of any official or unofficial pushback—a stance it has actively taken in the past.
- The last time the RBA defied market expectations by holding rates despite a 75%+ probability of a cut was April 2015, and before that, November 2012. In both instances, the RBA delivered a 25bp cut at the following meeting.
Figure 1: RBA-Dated OIS – Today Vs. Pre-Q4 CPI
Source: MNI – Market News / Bloomberg
MNI: MNI JAPAN Q4 REAL GDP +0.7% Q/Q; MNI MEDIAN +0.3%
- MNI JAPAN Q4 REAL GDP +0.7% Q/Q; MNI MEDIAN +0.3%
- JAPAN Q4 REAL GDP 2.8% ANNUALIZED; MNI MEDIAN +0.9%
- JAPAN Q4 CONSUMPTION +0.1% Q/Q; +0.1 PP CONTRIBUTION
- JAPAN Q4 CAPEX +0.5% Q/Q; +0.1 PP CONTRIBUTION
