The latest Westpac-Melbourne Institute Leading Index has signalled continued below-trend growth for the Australian economy, with a slight improvement in the near term overshadowed by broader weaknesses.
According to the Westpac-Melbourne Institute, the Australian economy is expected to endure subdued growth in the first half of 2024, despite a minor lift from the latter half of 2023.
The six-month annualised growth rate in the leading index, a predictor of economic activity relative to trend three to nine months in the future, dipped to -0.25% in January, from -0.01% the previous month, underscoring the challenges facing the economy.
Despite a brief uptick in late 2023, the economy remains on a trajectory of sub-trend growth.
“Westpac expects Australia’s economic growth to track a 1.3% annualised pace in the first half of this year, lifting from a weak 0.8% pace over the second half of 2023 but still well below trend, which is around 2.5%yr,” said Matthew Hassan (pictured above), senior economist at Westpac, in a media release.
“The latest leading index reads are consistent with this sluggish near-term growth profile.”
Momentum is expected to stay subdued in the near term, although there has been a noticeable improvement compared to last year. Throughout the first half of 2023, the leading index’s growth rate fluctuated between –0.75 and –1%, significantly lower than the –0.25% pace observed in January.
The details hint that the observed improvement may only signify a tentative stabilisation rather than the start of a new cyclical upswing. The latest data shows mixed results across the eight components, with equal numbers improving and deteriorating.
Seasonal factors and other noise could make some of the recent declines in hours worked and dwelling approvals temporary. Similarly, some of the positive developments, such as the rally in commodity prices, may not be sustainable, the Westpac report said.
For a detailed analysis, access the full report, Westpac-MI Leading Index January.
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