Latest data reveals uneven contributors to economic momentum at tail end of 2025
Australia’s economic momentum edged higher in December but remains well short of a strong growth phase, according to the latest Westpac-Melbourne Institute Leading Index released on Wednesday.
The six-month annualised growth rate in the Leading Index rose to 0.42% in December from 0.20% in November, suggesting the economy will continue to expand at a pace modestly above trend over the next three to nine months.
Matthew Hassan, head of Australian macro-forecasting at Westpac, said the update was “broadly consistent” with 2025’s recovery carrying into 2026. However, he cautioned that momentum “is still not all that convincing,” with growth rates only slightly above trend after stalling through mid-2025.
“An outright strong growth pulse, associated with Leading Index growth rate reads of over 1%, still looks to be a long way off,” Hassan said.
The bank expects the Australian economy to grow by 2.4% this year, roughly around trend.
Recent gains in the index have been narrowly based, driven primarily by two factors. Rising commodity prices measured in Australian dollar terms accounted for 0.29 percentage points of the improvement since mid-2025, led by gains in gold and copper. A renewed upturn in dwelling approvals contributed another 0.15 percentage points.
Hassan noted that further commodity price gains “may be hard to sustain given the unsettled global backdrop and an appreciating AUD.” He also said the positive signal around homebuilding prospects predated the sharp shift in interest rate expectations since late last year.
Other components of the index were mixed. Labour market indicators improved slightly but were offset by softer signals from consumer expectations, the S&P/ASX 200, yield spreads, and US industrial production.
The Reserve Bank’s Monetary Policy Board is scheduled to meet Feb. 2-3. Westpac analysts said the Leading Index suggests the cyclical upswing that formed in 2025 is continuing into the new year, though it remains unclear how much this contributed to last year’s lift in inflation.
“On balance we think these will allow the MPB to keep the cash rate on hold at this February meeting and throughout the remainder of 2026,” the report said. However, the board has prepared for possible rate increases if needed.
