A measure of economic growth improved slightly in May, suggesting the worst of the downturn in Australian may be over, a report says.

The annualised growth rate of the Westpac-Melbourne Institute leading index of economic activity was minus-3.9 per cent in May.

This was a slight improvement in the index, which predicts the likely pace of economic activity three to nine months in the future, from a reading of minus-4.1 per cent in the previous month.

The rate has been edging higher for the past three months.

The annualised growth rate is still 6.5 percentage points below the trend growth rate of 2.6 per cent, the report said.

But Westpac chief economist Bill Evans said the improvement in the annualised growth rate in May was a positive sign for the economy.

“This May reading supports the reasonable expectation that we have passed the worst, although the index is still contracting on a six-month annualised basis,” Mr Evans said in a statement.

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Mr Evans said the annualised growth rate remained in negative territory for 20 straight months during the recession of the early 1990s and for 16 straight months in the early 1980s.

Moreover, it took the index 12 and 11 months, respectively, for the growth rate to reach its low point.

“The annualised growth rate has now been negative for eight consecutive months but the low point appears to have been reached after just five months,” Mr Evans said.

“The more rapid recovery in the growth rate gives us some comfort that this economic downturn will be shorter than we saw in those previous cycles.”

Mr Evans said the timing of any movement back to positive growth was very uncertain, but he expected it to take much less than the 16 to 20 consecutive months of negative growth experienced during previous recessions.

Mr Evans said recent economic data, particularly measures of consumer and business confidence, and housing finance, also supported “a stronger and earlier recovery than we had previously expected”.

He attributed the boost in confidence and housing to the federal government’s two stimulus packages and the 425 basis points worth of interest rate cuts from the Reserve Bank of Australia (RBA).

“There is now a good chance that the economy will withstand the expected sharp contraction in business investment and housing construction and register modest but nevertheless positive growth,” Mr Evans said.

“Positive growth in the June quarter will move us further away from the risk of technical recession while the improvements in confidence are likely to imply somewhat more robust consumer spending.”

The actual level of thhe Westpac-Melbourne Institute leading index fell 0.5 index points to 248.2 points in May.

Two of the four monthly components were weaker, with dwelling approvals and US industrial production recording declines of 12.5 per cent and 1.1 per cent, respectively.

The All Ordinaries index and money supply both rose by one per cent.

Westpac said last week it expected no more interest rate cuts from the RBA in this easing cycle, with the cash rate to remain on hold “for an extended period” at a 49-year low of three per cent.

AAP