Australia's 1st half economic growth forecast below trend: Westpac

The Australian should expect weaker growth over the coming months as the outlook for the local economy in the first half of 2016 has declined, new figures show.

The Westpac/Melbourne Institute Leading Index, released on Wednesday, fell to -1.24 percent in January from -1.00 percent in December, the third consecutive fall of the index which indicates the likely pace of economic activity three to nine months in the future.

Westpac chief economist Bill Evans said the continuing below trend results are disappointing and signals Australia's growth in the first half of 2016 will also be below trend, adding there is great disparity in the results between domestic and offshore forces.

"The components of the index which reflect or are heavily influenced by international forces are weakening its growth whereas domestic sourced components, particularly around the labour market and confidence are providing an offsetting boost," Evans said in a statement.

The soft offshore factors included U.S. industrial production commodity price falls offset by continued favourable consumer sentiment and unemployment.

Australia's employment growth has remained above trend for some time, which has been a vexing issue for the local economy given the below-trend economic growth over the past year.

Local economists suggest this is due to growing labour-intensive services sectors which have supported economic and employment growth over the past two years as Australia's economy transitions away from mining-led growth, supported by a low Australian dollar.

However, non-mining business investment has been weak despite record-low central bank interest rates and the low Australian dollar. Non-mining capex was expected to lift and support stronger growth as Australia's economy transitions, however it still remains the missing ingredient.

"For the productive capacity of the economy to lift over the longer term, a lift in business investment outside of the resources sector is required," Commonwealth Bank of Australia senior economist Gareth Aird said in a research note published Wednesday.

Aird argues there are range of forces holding business investment back including demand being weak, the government's fiscal policy creating impediments to growth, demands for shareholder dividends and uncertainty surrounding the type of investment needed.

"The reason for a lack of investment goes beyond the level of interest rates and the Australian dollar - these cyclical drivers of business investment are at levels that support, rather than hinder, investment," Aird said. Endit