An indicator of Australian economic activity fell in March, signaling a renewed slowdown in growth expectations as higher interest rates and weaker consumer sentiment weigh on the outlook, 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, fell to negative 0.13% in March from 0.05% in February.
Australia's economy has slowed in early 2026, with the March index signaling a return to below-trend growth for the first time since last year, and potentially the start of another soft patch after the cost-of-living-driven weakness of 2022 to 2024, said Matthew Hassan, head of Westpac's Australian macro-forecasting.
The leading index has weakened notably, shifting from a 0.31% gain in October last year to a 0.15% decline currently, driven by higher interest rates and renewed pressure in the energy market linked to tensions in the Middle East.
Australia's headline growth momentum has been weighed down by weaker consumer sentiment, a sharp March equity sell-off, and a narrowing yield spread, though an early April rebound in shares could signal some near-term relief if sustained, Hassan said.
Commodity prices and volatile dwelling approvals have been the main drivers of recent index gains, while the remaining components have collectively made no net contribution since October.
The Reserve Bank monetary policy board is expected to deliver another 25 basis-point rate hike at its May meeting, as rising underlying inflation and the risk of higher inflation expectations outweigh emerging, but still modest, signs of weakening growth, Hassan added.