The economy looks set to struggle along for the remainder of the year, making it likely the Reserve Bank will cut interest rates in May, Westpac says.
The Westpac/Melbourne Institute leading index, which indicates the likely pace of economic activity three to nine months in the future, fell back into negative territory in March following a short-lived bounce in February.
The below-trend signal is in line with Westpac's expectation for sluggish economic growth of around 2.5 per cent for the remainder of 2015, Westpac chief economist Bill Evans said.
Mining investment is plummeting, non-mining business investment is flat and consumer spending is limping along, Mr Evans said.
Meanwhile, recent falls in commodity prices would weigh on Australia's terms of trade and were likely to impact mining production.
Mr Evans said the minutes from the RBA's April meeting, released on Tuesday, implied the central bank was likely to further revise down its growth forecasts for 2015, probably to 2.5 per cent, after having revised growth down to 2.75 per cent from three per cent in February.
Those revised forecasts would likely be released in the RBA's quarterly Statement on Monetary Policy on May 8, three days after the central bank is expected to cut interest rates to two per cent, he said.
"With the sharp fall in commodity prices; a resilient Australian dollar; and a disappointing outlook for business investment it seems likely that the board will decide to cut rates by 25 basis points at the May meeting," Mr Evans said.
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