Expectations for Australia's economic growth have slumped to a three-year low, weighed down by a tumble in consumer confidence following the federal budget.
The Westpac/Melbourne Institute Leading Index fell sharply in May, pointing to a significant loss of momentum in economic growth.
Westpac senior economist Matthew Hassan said it was concerning that all components of the index - including measures of consumer confidence, employment, commodity prices, and US industrial production - contributed to the fall.
"The fact that the slowdown is corroborated across all components is a strong indication that a genuine slowdown is underway," Mr Hassan said.
The index, which indicates the likely pace of economic activity three to nine months into the future, fell to -1.16 per cent in April from 0.03 per cent in March.
It was the weakest reading since late 2011, when the Reserve Bank of Australia began cutting rates, consumer confidence had slumped heavily and Europe's sovereign debt crisis was in full swing.
Mr Hassan said the decline was linked to a sharp fall in consumer confidence after the federal budget, which outlined a raft of tough spending cuts.
A drop in commodity prices, such as iron ore, and slowing growth in US industrial production also took a toll.
Some of the factors dragging the index down could be temporary, Mr Hassan said.
"The post-budget fall in consumer sentiment may be something that reverses and US industrial production was probably affected by weather conditions earlier this year," Mr Hassan said.
"But even allowing for those, the fact that we are getting the same consistent signal across the components does suggest there is an underlying slowing in momentum happening."
The slowdown was occurring against a backdrop of weaker global growth in 2014, he said.
Falling commodity prices reflected weaker demand from China, while the tough budget and a cooling of the housing market were also having an impact.
The sharp loss of momentum in the index would encourage the RBA to maintain its `on hold' stance on interest rates, Mr Hassan said.
Share
