Leading indicators of the likely path of Australia's gross domestic product (GDP) point to modest growth in the three to nine months ahead, as highlighted by 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 November, lifting slightly to 0.32% from 0.22% in October,' stated 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 is expected to show more vitality in 2025 compared to the somewhat subdued year of 2024, as per Westpac’s assessments.
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 mentioned. Despite an improving outlook for economic growth, Australian businesses and workers may still face 'headwinds' in 2025, according to the bank. While the domestic economy may gain firmer footing in 2024, international conditions may fluctuate, with implications for Australian enterprises, expressed Westpac.
The international components of the Westpac leading index, including US industrial production and commodity prices, 'are a small offsetting drag on momentum,' informed Westpac. The commodity price headwind is expected to intensify in 2025, particularly regarding 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) is scheduled to meet in February, having kept its key policy interest rate at 4.35% throughout 2024. However, even early next year, the RBA may not be prepared to reduce rates, as the central bank's battle against inflation remains ongoing, and labor markets are still tight, remarked 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..