There is an around one-in-four probability of an economic contraction in the June quarter in Australia, based on historical patterns and an estimated 10% chance of a negative quarter in the September quarter, Westpac said in a Friday report.

Growth has slowed sharply and is stabilizing at a weak pace, Westpac said. The Westpac-Now indicator projected gross domestic product (GDP) growth of around 0.2% on a quarterly basis in the June quarter, with a range of 0.16% contraction to 0.4% growth. Its projection has year-end growth slowing to 1.7% on an annual basis in the quarter, below the central bank's expectation of 1.9%.

The Westpac Monthly Activity Index has declined since November 2025, bringing the index back to levels last seen in the January quarter of 2025. However, Westpac said the fall in the index in May was less than half the decline recorded in April.

Elevated interest rates and inflation, a well as ongoing weakness in consumer and business confidence, amid recent policy changes and the conflict in the Middle East, are weighing on activity across the Australian economy, Westpac said. Looking ahead, the risk profile remains skewed to the downside, it added.