Leading Index points to sluggish, below-trend growth
- Leading Index growth rate remains weak at –0.17%.
- Sluggish momentum carrying into the second half of 2026.
- Most components contributing to the weaker tone since late last year.
The six-month annualised growth rate in the Westpac–Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, ticked up slightly to –0.17% in May from –0.18% in April.
Westpac’s Head of Australian Macro-forecasting, Matthew Hassan, commented “The Australian economy is showing clearer signs of a loss of momentum. The March quarter national accounts revealed a clear softening in activity with demand near flat outside of a pick-up in data centre related investment. The May Leading Index shows this sluggish, below-trend growth momentum is likely to continue through the second half of 2026 and into early 2027. While the growth pulse is still not overly weak, it’s likely to take some time yet before the full negative impacts from higher interest rates and the spike in fuel costs become apparent.”
“The last six months have seen the Leading Index growth rate swing from a solid positive +0.40% in December to a decidedly sluggish –0.18%. The deterioration has been fairly broad-based with five of the eight components contributing to the slowdown.”
“The main weakness has come from: a narrowing yield gap, mainly stemming from the RBA’s cash rate rises (accounting for –0.25ppts of the slowdown); and a slump in the forward-looking components of consumer sentiment, the Westpac-Melbourne Institute Consumer Expectations Index down nearly 15% (taking a further –0.18ppts off the headline growth rate). This has combined with a flattening out in monthly dwelling approvals (–0.14ppts); stalling commodity prices in AUD terms (–0.12ppts); and a softening in consumer expectations for the labour market, the Westpac-Melbourne Institute Unemployment Expectations Index down 10% (taking another –0.12ppts off headline growth). The contribution from the S&P/ASX200 has remained broadly unchanged at flat, reflecting the decided mixed performance of the Australian sharemarket since the start of the year.”
“This combined drag of 0.81ppts has been partially offset by a lift in US industrial production (adding +0.15ppts) and some firming in total hours worked (+0.09ppts).”
Next release: 11 am (AEST), Wednesday 22 July 2026
The Westpac–Melbourne Institute Leading Index of Economic Activity report examines movements in the leading indicator of economic activity in Australia. It is designed to anticipate economic growth in the next 3 to 9 months.
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