Overview
The Westpac–Melbourne Institute Leading Index for Australia has remained steady at +0.08% for February, unchanged from January. However, this figure indicates a decline from +0.13% recorded in September, suggesting a moderating economic momentum as various headwinds begin to emerge.
Current Economic Indicators
The Leading Index, which forecasts economic activity three to nine months ahead, shows that while growth is slightly above trend, it is losing pace. The financial components, particularly the S&P/ASX 200, have seen a significant decline in their positive contribution, shifting to a neutral stance. This change reflects a broader trend of softer market sentiment and tighter financial conditions.
Contributing Factors
Despite the cooling financial markets, the index has been partially supported by higher commodity prices and an increase in hours worked. However, these positive factors may not be sufficient to counterbalance the growing macroeconomic pressures.
Future Projections
Westpac anticipates that the combination of recent interest rate hikes by the Reserve Bank of Australia (RBA) and the economic impacts of the ongoing conflict in the Middle East will further constrain economic activity. The RBA's rate hikes are already beginning to limit demand, while high energy prices and global uncertainties are expected to dampen both business and consumer confidence.
As a result, Westpac forecasts a slowdown in Australia’s GDP growth to approximately 2.0% in 2026, down from 2.5% in 2025. This projected growth rate is considered below the trend for the economy.
Conclusion
The current Leading Index reading highlights a significant shift in the Australian economic landscape. While the economy has shown resilience, the balance of risks is increasingly leaning towards slower growth. With tightening financial conditions and rising global uncertainties, the outlook is shifting from expansion to moderation.