Australia’s economy is expected to pick up pace in early 2015 as consumers become more confident and start spending again.

The Westpac/Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, fell by 0.15 points to in August.

That would indicate that economic growth will stay at a below average pace for the rest of the year, but Westpac chief economist Bill Evans is more optimistic about the new year.

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He expects consumer spending in the second half of 2014 to improve and rise further in the new year.

“That more positive consumer outlook is expected to strengthen further in the first half of 2015, reaching a 3.5 per cent annualised pace,” Mr Evan said.

“That is consistent with our slightly more upbeat view on the first half of 2015 than is implied by the index.”

Westpac’s forecast for annualised economic growth for the first half of 2015 is 3.25 per cent, which is more optimistic that the Reserve Bank’s most recent forecast of two to three per cent.

“Over the last six months the index’s growth rate has remained at a below trend growth pace,” Mr Evans said.
“However, the components of the index which have been driving this below trend pace have evolved.”

Mr Evans said consumer confidence and employment expectations will continue to improve into the new year and help boost spending.

He is still forecasting that the RBA will keep the cash rate unchanged at 2.5 per cent until a rate rise in August next year.