Australia’s economic momentum is improving, with the Westpac–Melbourne Institute Leading Index lifting to +0.35% in October from +0.10% in September. The six-month annualised measure points to slightly above-trend growth in early 2026.
Westpac economist Ryan Wells (pictured) said the index has “built up some momentum heading into year-end,” aligning with the bank’s forecast for GDP growth to lift from 1.8% to 2.4% in 2026. Wells noted that the current strength is expected to face some headwinds as the new year begins.
The move into positive territory reflects easing uncertainty since mid-year, when global tariff risks weighed on confidence. Three components drove the improvement: a sharp rise in consumer expectations, continued strength in the S&P/ASX200, and modest gains in hours worked.
Consumer sentiment posted its first net-positive reading in nearly four years, adding 0.19 percentage points to the index. Equities also remained well above April lows, adding 0.17 percentage points, while hours worked contributed 0.07 percentage points.
However, Wells warned the boost may fade. Consumer expectations remain volatile, and the sharemarket has already sold off in November, potentially reversing its positive impact.
Downside contributions came from weaker consumer expectations for jobs and softer US industrial production. Dwelling approvals and yield spreads made only minor shifts, while the drag from commodity prices eased slightly.
RBA’s next meeting is on Dec. 8–9. Wells said the board can afford to hold the cash rate steady while assessing the trend in inflation, given policy remains “mildly restrictive.”
He noted Westpac still expects the cash rate to remain on hold until mid-2026 before cuts in May and August return policy to neutral settings.
Recent inflation data has added complexity. The September-quarter CPI came in hotter than expected, with trimmed-mean inflation at 3% – above RBA’s 2.6% forecast. CBA economists warned the breadth of price rises across housing, childcare and council rates suggests more persistent inflationary pressure.
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