Demand for new cars is falling

New car sales dropped 2.7 per cent in February, and an economist says there is little prospect of growth ahead.

The number of new cars sold in Australia in February was down 2.7% compared to January's figure. (AAP)

Demand for new cars continues to soften, with sales dropping 2.7 per cent in February.

The fall to 94,786 sales in February was the largest monthly slide since October 2015, and Victoria posted the largest decline, of 7.7 per cent, according to seasonally adjusted figures from the Australian Bureau of Statistics.

Sales across the country were down 4.1 per cent from a year ago, the largest annual fall since 2011, with Western Australia recording the biggest annual slide, of 10.7 per cent.

St George Bank senior economist Janu Chan said new car sales have been trending lower for five months, though in February were only 5.2 per cent lower than the record high of almost 100,300 in March 2016.

Demand is "modest at best" amid soft wage growth and high levels of household debt, she said.

"There does not appear to be much scope for strong growth in car sales, although a moderate pace of growth in domestic demand should keep sales at a relatively high level," Ms Chan said.

Sales of standard passenger cars dropped the most in February, down 4.3 per cent, while 'other' vehicles, including utes, trucks and buses, rose 1.1 per cent.