Australia Leading Index Stays Subdued

The Westpac–Melbourne Institute Leading Economic Index was flat month-on-month in August, unchanged from the previous month. Meanwhile, its six-month annualised growth rate improved to -0.09% from -0.17% in July. Momentum remained soft but has strengthened since mid-year, with the index now only marginally below trend heading into late 2026 and early 2027. Q2 GDP growth showed the Australian economy holding up better than expected despite a global energy shock and higher interest rates. Activity appears to be stabilising at a slow pace rather than stalling, supported by resilient households and a strong ramp-up in data-centre investment. Westpac expects the RBA to raise rates again but, on balance, to wait for the next comprehensive quarterly inflation update on October 28. As a result, the September meeting is likely to deliver a “very hawkish hold.”

The Westpac–Melbourne Institute Leading Economic Index was flat in July after an upwardly revised 0.1% gain in the prior month. Meanwhile, the six-month annualised growth rate improved to -0.2% from -0.4%, though it remained below trend for a seventh straight month. Momentum has firmed modestly since mid-year, pointing to an economy that is soft but not weak, with GDP growth likely to stay positive even as per-capita output hovers near flat. Westpac expects the Reserve Bank to hold rates again in September while stressing readiness to tighten if inflation proves sticky. Head of Macro-Forecasting Matthew Hassan said softer growth signals should reassure the board that demand is gradually aligning with supply, though the moderation also underscores resilience. The key issue remains whether growth slows enough to return inflation to the 2–3% target range in time.

The Westpac-Melbourne Institute Leading Economic Index was flat in June 2026, following a revised 0.1% fall in May, with the underlying index showing signs of stabilisation after most of the weakness emerged in the first three months of the year. Meanwhile, the six-month annualised growth rate fell to -0.36% from -0.25% in May, marking the sixth consecutive below-trend reading and the weakest pace since late 2023. The latest reading points to slowing economic momentum, reflecting the lagged impact of the RBA’s rate hikes in February, March, and May, along with earlier fuel price shocks linked to geopolitical tensions. A narrowing yield spread was the largest contributor to the deterioration, while weaker dwelling approvals, consumer expectations, and hours worked also weighed on the index. However, renewed inflation risks and Middle East tensions could weigh on growth ahead. The RBA will focus on the June quarter CPI report ahead of its August meeting.