The Westpac-Melbourne Institute leading index has recorded a sixth consecutive month with a negative growth rate, after recording a weak reading of -1.04 per cent for January, compared to -1.09 per cent in December.
The index, which indicates the likely pace of economic activity three to nine months into the future, continues to point to below-trend growth.
Westpac chief economist Bill Evans said the leading indicator aligned with the bank's expectation for economic growth to ease to a "stalling speed" by the second half of 2023.
"The leading index growth rate has seen a sharp deterioration over the last six months, going from running 0.76 per cent above trend in July to 1.04 per cent below trend in January," he said.
Five of the eight domestic and international index components indicate growth expectations sunk over the month, including easing commodity prices, slowing US industrial production, a sharp narrowing in the yield spread as central banks hike interest rates and a softening in consumer expectations for the labour market.
Gains in the share market, a likely "temporary bounce" in dwelling approvals and stabilising consumer expectations somewhat offset those declines.
"Growth in the Australian economy is slowing, as the impacts of the last year's substantial tightening of monetary policy flow through," the Melbourne Institute said.
"Stronger-than-expected underlying inflation in the December quarter firmed expectations of several further interest rate increases this year."
Mr Evans said recent hawkish commentary from the Reserve Bank of Australia implies an upside risk to Westpac's view that the cash interest rate will peak at 3.85 per cent in this cycle, compared to 3.35 per cent now.
Meanwhile, the Australian Bureau of Statistics will release key wages data for the December quarter on Wednesday.
The consensus is for one per cent quarterly growth in the wage price index and 3.5 per cent over the year, following a 3.1 per cent lift in September.
But a higher result could put pressure on the RBA to hike interest rates by more than expected.
NAB markets economist Taylor Nugent said the RBA was not yet worried about the pace of wages growth hampering the bank's ability to drive inflation down but it was concerned about a possible shift in wage and price-setting behaviour.
"Wages growth sustaining above four per cent is unlikely to be consistent with inflation returning to the two-three per cent target, while acceleration well beyond that level would also likely cause the RBA to question their assessment that 'wages growth remained lower here than elsewhere'," he said.
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