Westpac’s Leading Index slowed to near-flat in January, signalling growth momentum has slipped back to trend. Consumer and housing weakness offset commodity support, with GDP still seen at 2.5% in 2026.
Summary:
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Westpac–Melbourne Institute Leading Index slows to +0.02% in January (from +0.44%).
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Growth momentum shifts from slightly above trend to broadly in line with trend.
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Consumer sentiment and dwelling approvals the main drags.
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Commodity price gains cushioned weakness, but AUD strength may dilute support.
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Westpac still sees 2.5% GDP growth in 2026, with next RBA hike likely in May.
Australia’s growth pulse has flattened at the start of 2026, with the Westpac–Melbourne Institute Leading Index slowing sharply in January, signalling that momentum has slipped back to trend after a modest lift late last year.
The six-month annualised growth rate of the index — which tracks economic activity three to nine months ahead — eased to +0.02% in January from +0.44% in December, effectively stalling. Westpac said the earlier second-half pick-up in 2025 was never especially convincing, and the latest reading suggests that momentum has once again faded.
The weakness was centred on the domestic consumer and housing sectors. The Westpac-MI Consumer Expectations Index shaved 0.16 percentage points off the growth rate over the past six months, while dwelling approvals detracted a further 0.23 points. While approvals have been volatile month to month, softer consumer sentiment appears more entrenched, reflecting shifting interest-rate expectations and the impact of February’s Reserve Bank hike.
Commodity prices provided some offset, contributing 0.36 percentage points over the past half-year. However, Westpac noted that gains in USD-denominated commodity prices were partly diluted by a firmer Australian dollar, with the recent acceleration in AUD strength likely to dampen future readings if sustained.
Despite the softer signal, Westpac continues to forecast GDP growth of 2.5% in 2026, broadly in line with trend. The bank expects the Reserve Bank of Australia to tread cautiously at its March meeting but sees another 25bp rate hike in early May, contingent on a still-elevated quarterly CPI reading due April 29.
For now, the Leading Index suggests the tightening cycle is beginning to weigh, reinforcing expectations of an “on again, off again” growth profile this year.
This article was written by Eamonn Sheridan at investinglive.com.
