The Westpac-Melbourne Institute Leading Index's six-month annualised growth rate — a gauge of the likely pace of economic activity three to nine months ahead — lifted to –0.09% in August, from –0.17% in July.
Westpac head of Australian macro-forecasting Matthew Hassan (pictured) said the reading points to the economy "holding up better than expected in the face of a global energy shock and higher interest rates," an assessment drawn from the June quarter national accounts, with growth stabilising at a slow pace rather than stalling.
Hassan pointed to household resilience and a strong ramp-up in data centre investment as notable sources of support. On the back of the improved signal, Westpac lifted its year-end growth forecast to 1.5%, up from an earlier 1% projection, though Hassan cautioned that a further rise in interest rates would take some of the shine off growth in the near term.
That caution ties into the Reserve Bank's next move: its Monetary Policy Board meets on 28–29 September, and Westpac expects the RBA to lift rates again — but not until its next full quarterly inflation update on 28 October, calling the September meeting likely to be a "very hawkish hold." That view lines up with other major banks' forecasts of at least one further RBA rate rise before the end of the year.
The Leading Index is designed to flag turning points in the economy ahead of time, combining a range of variables into a single reading that Westpac says is generally a more reliable cyclical signal than any one component alone.
The current run, averaging –0.17% since the start of the year, is considerably milder than the extended weakness recorded during the 2022–2024 cost-of-living downturn, when the index averaged –0.46% with troughs closer to –1%.
Despite the improvement, the report flagged some fragility in the numbers.
Labour markets, financial markets, commodity prices, and consumer sentiment have combined to drag 0.42 percentage points off the index's growth rate since February, an effect partially offset by a stronger signal from dwelling approvals, up 0.32 percentage points, and firmer US industrial production.
Even so, headwinds remain: rising fuel prices and renewed concern over further rate increases appear to be weighing on consumer sentiment again, with early signs that weakness in established housing markets is also feeding through.
For brokers, the update suggests borrowing conditions are likely to stay tight into early 2027, even as the broader economy avoids a sharper downturn.
To read the full Westpac report, click here.
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