The Westpac-Melbourne Institute Leading Index, a predictor of the economic activity pace relative to the trend from three to nine months in the future, has shown back-to-back positive growth for the first time in over two years. November saw the index rise to 0.32% from 0.22% in October.
The Westpac-Melbourne Institute Leading Index has experienced a notable increase over the last six months, climbing from a negative 0.31% in May to a positive 0.32% as of the latest report.
The rise is underpinned by improvements across seven of its eight components, signaling a gradual uptick in economic conditions.
Major positive contributions have been noted in consumer sentiment, dwelling approvals, and a widening yield gap.
These improvements align with Westpac’s forecast of GDP growth increasing from the current 0.8% per year to 2.2% by the end of 2025, albeit still slightly below the trend.
The primary drivers of this optimistic trend include domestic factors such as consumer confidence, housing market activities, and labour market conditions.
Financial markets have also contributed positively, particularly with a robust performance from the equity market, exemplified by a 3.4% rise in the S&P/ASX200 in November alone.
However, international factors like US industrial production and commodity prices pose minor drags on momentum, with potential challenges looming in 2025.
The Reserve Bank (RBA) board, which is set to meet on Feb. 17-18, remains cautious but optimistic about achieving the inflation target of 2-3%.
Despite positive signals from the Westpac-Melbourne Institute Leading Index, RBA requires further evidence of slowing inflation before adjusting monetary policy.
Westpac anticipates that interest rates will hold steady at the February meeting, with potential easing beginning in May.
Despite the modest pace of growth, Australia’s economy shows signs of resilience, supported by strong domestic fundamentals and careful monetary management.
As 2025 approaches, the focus will likely remain on balancing growth stimulation with inflation control, ensuring a stable economic trajectory in the face of global uncertainties, Westpac reported.
Read full report, "Westpac-MI Leading Index November."
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
