Australian Westpac Leading Index Points to Modest Growth

Leading indicators of the likely path of Australia's gross domestic product (GDP) point to modest growth in the three to nine months ahead, according to the Westpac-Melbourne Institute Leading Index, released on Wednesday.

The "likely pace of economic activity relative to trend three to nine months into the future, stayed in positive territory in the November, lifting slightly to 0.32% from 0.22% in October," said Westpac.

The positive leading index results in October and November mark "the first (monthly) back-to-back positive reads on the Index growth rate in nearly two and a half years," added Westpac.

The Australian economy in 2025 will likely show more life than the somewhat subdued 2024, said Westpac, a major Australian banking enterprise.

The Australian GDP growth "is forecast to rise from the anemic 0.8% on year pace currently to 2.2% on year by the end of 2025," it added.

Despite improving outlooks for economic growth, Australian businesses and workers could expected to encounter "headwinds" in 2025, said the bank.

While the Australian domestic economy may move to firmer footing in 2024, the international scene may waffle, with implications for Australian enterprise, said Westpac.

The international' components on the Westpac leading index, including, US industrial production and commodity prices, "are a small offsetting drag on momentum," advised Westpac.

However, the commodity price headwind may intensify in 2025, particularly with respect to Australia's commodity prices. "Westpac expects (commodity) prices to decline 9% over the course of 2025, compounded in Australian dollar terms by a modest firming in the currency," said the bank.

The Reserve Bank of Australia (RBA) next meets in February, having left its key policy interest rate fixed at 4.35% through all of 2024.

But even early next year, the RBA may not be ready to cut rates, as the central bank''s battle against inflation is not yet done, and labor markets are still tight, said Westpac.

"On balance, Westpac expects the Board to leave interest rates unchanged at its February meeting, with an easing expected to commence in May," advised the bank.