An indicator of Australian economic activity remained flat in February, signaling only slight positive momentum while pointing to near-term weakness amid rising interest rates and Middle East tensions, according to a report by Westpac and Melbourne Institute published on Wednesday.

The Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, remained at about 0.1% in February, unchanged from January.

Australia's economic momentum is slightly above average early this year but is set to ease as the Reserve Bank of Australia's (RBA) rate hike and pressures from the Middle East conflict take effect, said Matthew Hassan, head of Westpac's Australian macro-forecasting.

Westpac expects gross domestic product growth to ease to 2% this year, down from 2.5% last year and below trend, with the impact of these developments likely to become clearer in March and April.

The leading index growth rate eased to roughly 0.1% in February from over 0.1% in September 2025, as a cooling Australian share market reduced the top 200 companies' contribution to flat from nearly 0.2 points, likely becoming a drag next month, Hassan said.

Rising commodity prices have been the key offsetting driver for the leading index, contributing 0.1 percentage points to growth since September 2025, with recent global energy spikes poised to further boost the index next month.

The latest leading index shows slight positive momentum but signals near-term weakness due to the RBA's March rate hike and Middle East tensions, keeping inflation risks central and making a 25 basis point rate hike in May likely, Hassan added.