Australia Leading Index Subdued in May

The Westpac–Melbourne Institute Leading Economic Index was flat month-over-month in May 2026 after an upwardly revised 0.1% gain in the previous month, underscoring weak momentum. Meanwhile, the six-month annualised growth rate edged to -0.17% from -0.18% in April, signalling below-trend growth likely through late 2026 into early 2027. While no sharp downturn is evident, the drag from higher rates and elevated fuel costs is expected to build gradually. At its June meeting, the Reserve Bank paused to gauge the impact of earlier hikes and the energy shock but warned inflation risks remain skewed upward, leaving scope for further tightening. Consistent with the leading Index, growth appears subdued, though inflation remains the central bank’s primary concern. Westpac expects upcoming CPI to remain uncomfortably high, raising the odds of additional hikes in the coming months.

The Westpac–Melbourne Institute Leading Economic Index stalled from a month earlier in April 2026, following a 0.10% decline in March. Meanwhile, the six-month annualised growth rate slipped to -0.17% from -0.11% in March, pointing to below-trend growth through the second half of 2026 and into early 2027. The latest reading marked the first consecutive below-trend signal since late 2024, reflecting a clearer loss of momentum in the Australian economy. The deterioration was driven mainly by a sharp weakening in consumer sentiment, with the Consumer Expectations Index plunging 20% since late last year and becoming a major drag on the headline index. Softer financial market indicators, including a narrowing yield spread and weaker equity markets, also weighed on the outlook. Westpac expects the Reserve Bank to pause at its June meeting after three straight rate hikes, while persistent inflation pressures are likely to keep the door open for further tightening later this year.

The Westpac–Melbourne Institute Leading Economic Index inched down 0.1% month-on-month in March 2026, matching February's reading. Meanwhile, the six-month annualized growth rate, which indicates the likely pace of economic activity relative to trend three to nine months into the future, declined to –0.13% in March from 0.05% in February. Higher interest rates and the spike in fuel prices associated with the conflict in the Middle East are starting to weigh on growth momentum, albeit fairly mildly, according to Westpac economist Matthew Hassan. The March Index already points to a period of below-trend growth over the remainder of 2026. While the growth pulse is not overly weak, it is the first below-trend read since August last year and, before that, since the extended period of weakness during the ‘cost-of-living’ crisis of 2022–2024. Westpac expects the Reserve Bank to raise the cash rate by another 25bps in May, with further moves likely in subsequent months.