23-05-2025
Australia's economic momentum slows as leading index falls to 0.2%
The Westpac Melbourne Institute Leading Index's six-month annualised growth rate eased in Australia to 0.2 per cent in April, down from 0.5 per cent in March, signalling a slower pace of economic activity in the coming months.
The early-year signs of above-trend growth have now 'all but disappeared,' Westpac said, pointing to heightened global trade uncertainty and a less supportive commodity price environment as key drags. While external pressures dominate, domestic factors have offered only modest support—labour market momentum has slowed, and current interest rate settings are not sufficiently stimulative.
Australia's economy is showing signs of slowing momentum. The six-month annualised growth rate in the Westpac-Melbourne Institute Leading Index eased to 0.2 per cent in April from 0.5 per cent in March, indicating a deceleration in economic activity. This shift reflects heightened global trade uncertainty and a less supportive commodity price environment.
Westpac forecasts GDP growth to reach 1.9 per cent year-on-year by the end of 2025—a below-average result by historical standards, underlining continued challenges for the recovery.
Over the past six months, the growth rate of the Leading Index has remained unchanged, with five of its eight components weakening. This mixed performance points to stalling momentum in what was already expected to be a gradual recovery for the Australian economy.
The weakening signal has come from financial market and sentiment-based components. The biggest additional drags have come from: the Westpac–Melbourne Institute Consumer Expectations Index (taking 0.23ppts off the headline growth rate); the S&P/ASX200 (–0.12ppts) and the Westpac Melbourne Institute Consumer Unemployment Expectations Index (–0.1ppts). Dwelling approvals and total hours worked have also shaved a further 0.1ppts off the headline growth rate on a combined basis.
Over the last six months, this additional drag has been offset by more positive contributions from commodity prices (adding 0.24ppts to the headline growth rate), US industrial production (+0.17ppts) and the yield spread (+0.15ppts). However, all of these components have become less supportive in the last few months. In the case of commodity prices, which are measured in AUD terms, strong gains late last year have given way to a partial retracement since January. US industrial production has also moderated from a mini-surge late last year. The yield spread component is also providing less positive impetus – reflecting, at short end of the interest rate curve, the RBA's gradual policy easing and, at the long end, downgraded global growth prospects.
The Reserve Bank Monetary Policy Board next meets on July 7–8. As expected, the board lowered the cash rate target by 25bps to 3.85 per cent at its May meeting, citing increased confidence around inflation and an expectation that international developments would exert some drag on the economy. That drag is already starting to show through more clearly in Leading Index growth reads. That said, it does not look too threatening at this stage, with most of the effect coming via sentiment and financial markets rather than a hit to trade and export prices.
Fibre2Fashion News Desk (RR)
