In part reflecting "higher for longer" prospects for interest rates, the six-month economic outlook of the Westpac-Melbourne Institute Leading Index took a turn south in May, reported Westpac on Wednesday.
The leading index "which indicates the likely pace of economic activity relative to trend three to nine months into the future, fell from negative 0.05% in April to negative 0.24% in May," said Westpac.
"Higher (interest) rates, lower commodity prices and housing weakness the main drags," reported Westpac.
Australia is a major producer and exporter of resources, including iron. But iron prices have cooled, reflecting the "correction in iron ore prices since the start of the year, as a rally over the second half of 2023 has unwound."
Housing production in Australia remains sub-par, while costs to homebuyers and renters are rising, noted Westpac.
Nevertheless, Westpac expects the Australian economy to grow more quickly in the second half of 2024, than in the first. We expect "gross domestic product (GDP) growth to lift from a very weak 0.8% annual pace over the first half of this year to a firmer 2.2% pace over the next three quarters, with fiscal measures providing much of the lift," said Westpac.
The sluggish Australian economy will likely mean the nation's central bank, the Reserve Bank of Australia, will hold rates steady in their next policy session, said Westpac.
"The (RBA) Board next meets on August 5 through 6. We expect it to again leave the official cash rate unchanged. The economy's sub-trend growth is bringing demand more in line with supply, helping to lower inflation. The latest Leading index read suggests this process will continue near term," said Westpac.
In May, the RBA estimated the nation's GDP would expand by 1.3% in 2024, and by 2.1% in 2025, and that inflation would cool to within the central bank's target 2% to 3% range by late 2025.
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