Australia’s Westpac Leading Index slowed in January, falling from 0.44% to 0.02%, pointing to fading growth momentum at the start of 2026. Westpac noted that the slightly above-trend pace seen in the second half of 2025 has lost traction, adding that the earlier improvement was never particularly convincing and stalled mid-year.
The bank warned that with growth stalling again and further rate increases still possible, 2026 may shape up as another “on again, off again” year for the economy. Even so, Westpac continues to expect GDP growth of around 2.5% this year — broadly in line with trend and consistent with the Leading Index signal.
For monetary policy, the near-term focus is inflation. While a March hike cannot be ruled out, Westpac expects RBA to pause and wait for more evidence. The decisive moment is likely Q1 CPI at end-April. If inflation remains stubbornly high, another 25bps increase at the May meeting appears likely despite signs that tighter financial conditions are beginning to weigh on activity.
