Aust economy set for marked improvement

The Westpac-Melbourne Institute Leading Index indicates that economic growth will rise to an above-average pace of 2.8 per cent in 2016.

The Australian economy is set to look much rosier next year, with above-trend growth thanks to a lift in household spending and net exports.

The forecast was signalled by the Westpac-Melbourne Institute Leading Index, which rose in October to leave the growth rate only slightly below trend.

Westpac chief economist Bill Evans said the economy had been steadily strengthening in the past two months, and growth next year was now likely to be 2.8 per cent, up from an expected 2.3 per cent in 2015.

Mr Evans said a critical source of that advancement is tipped to come from a boost in household spending as well as rising net exports, which are partly driven by strength in the services sector.

"Also assisting this more positive growth outlook for 2016 will be a modest improvement in non-mining investment and a smaller drag from mining investment, particularly in the second half of 2016," he said.

Mr Evans said the brighter domestic forecast will keep the Reserve Bank from cutting interest rates next month.

"With no move in November and the bank indicating that prospects for a strengthening economic environment had improved a little, there is virtually no chance of a move in December," he said.