The six-month annualized growth rate in the Westpac-Melbourne Institute Leading Index narrowed to negative 0.09% in August from negative 0.17% in July, according to a report on Wednesday.
The index indicates the likely pace of economic activity relative to trend three to nine months into the future.
Momentum has continued to improve and is only slightly below trend heading into later in the year and early 2027, Westpac Head of Australian Macro-Forecasting Matthew Hassan said.
The June quarter national accounts showed the Australian economy holding up better than expected amid a global energy shock and higher interest rates, with growth stabilizing at a slow pace.
Westpac now expects annual growth to slow 1.5% by the end of the year, up from its previous forecast of 1%, Hassan said.
The growth pulse remains soft, with the leading index growth rate averaging negative 0.17% since the start of the year, which is milder than the negative 0.46% average during the cost-of-living crisis from 2022 to 2024.
Rising fuel prices and potential interest rate hikes seem to be negatively affecting consumer sentiment, with indications that the downturn in established housing markets is also having an impact. These effects might worsen in the near term and could extend to other components.