The Westpac-Melbourne Institute Leading Index for February 2025 reported a rise in the six-month annualised growth rate to 0.8%, an increase from 0.6% in January. This index signals the expected economic activity over the next three to nine months.
Despite the improvement, there are concerns as commodity and currency benefits diminish due to impending tariff impacts. However, domestically focused components are showing strong support for the index’s current performance.
Economic Momentum And External Pressures
This latest report suggests that economic momentum is building, albeit with some external pressures that could alter future expectations. A 0.2 percentage point increase in the six-month annualised growth rate points to a steady, albeit moderate, upward trajectory for economic activity heading into the middle of the year.
One of the main takeaways from the report is the shift in what is driving growth. The previous tailwinds provided by commodities and currency-related advantages are beginning to wane, placing more emphasis on internal market conditions. External demand, particularly from trade-sensitive sectors, is running into difficulties as new tariff measures come closer to taking effect. These concerns are not theoretical; they have already started impacting pricing strategies and purchasing decisions in some industries.
On the other hand, domestic indicators reflect steady resilience. Employment conditions remain supportive, and household expenditure is displaying a level of stability that suggests confidence has not been materially shaken by external risks. This aligns with broader trends in financial markets, where rate expectations and fiscal policy decisions continue to have an outsized effect on sentiment.
Policy Signals And Market Outlook
Leading into the coming weeks, market participants will need to account for these opposing forces. The improvement in the growth rate may suggest short-term economic stability, but pressures from trade and global realignments introduce an unavoidable degree of caution. While the index itself reflects forward-looking economic conditions, it is necessary to remain attentive to shifting trade policies and domestic activity levels to determine whether this momentum is sustainable or temporary.
Policy signals and economic data releases in the near term will likely carry more weight than in previous months. With early indicators suggesting a potential transition in growth drivers, careful assessment of inflation trends and labour market conditions will be required. Forward planning should reflect both the measured optimism in domestic data and the emerging risks from external shifts.
