An indicator of Australian economic activity rose in December 2025, suggesting a slight pick-up in momentum but still pointing to growth broadly in line with the trend, according to a report by Westpac and Melbourne Institute published on Wednesday.
The Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, increased to 0.42% in December 2025 from 0.2% in the previous month.
Australia's economic recovery is expected to extend into 2026, but momentum remains subdued, with the index growth rate just modestly above trend.
Westpac forecasts 2.4% growth for 2026, roughly in line with the trend, while recent gains in the leading index have been limited and narrow, said Matthew Hassan, head of Westpac's Australian macro-forecasting.
The leading index growth rate has increased by 0.38 percentage points since mid-2025, driven primarily by higher commodity prices, led by gold and copper, and a rebound in dwelling approvals.
Additional gains in commodity prices may be capped by global uncertainties and a stronger Australian dollar, with the housing outlook improving ahead of the recent shift in interest rate expectations, Hassan said.
The Reserve Bank monetary policy board is likely to keep the cash rate on hold through 2026, as the 2025 upswing continues, with inflation and labor market updates in the coming weeks determining whether rate hikes are needed, Hassan added.
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