Optimism towards a better economy in Australia is beginning to set in, according to the latest Westpac-Melbourne Institute Leading Index.

The index, which measures the likely pace of economic activity three to nine months into the future, was at 4.5 per cent in August, above the long-term trend of 3.3 percent.

Westpac chief economist Bill Evans said in a statement it was too early to embrace the forecast that growth would surge above trend in early 2012, but the signal ''warrants respect''.

Growth in the Second Half

Economic growth is seen further improving in the second half of 2011, consistent with the index forecast from the first part of the year and based on an annual pace of around 1.5 per cent - but below trend growth for the economy.

''Over the last six months, the growth rate in the Index has increased from 2.9 percent to 4.5 percent,'' Mr Evans said on Wednesday.

Growth in corporate profits, productivity and dwelling approvals was tempered by lower manufacturing prices and a drop in the All Ordinaries index, US industrial production and the real money supply, a related report from the Sydney Morning Herald said.

Australia's strong mining industry growth related to its iron ore and coal production have strongly contributed to the steady economic growth in the country. The Australian Parliament led by Treasurer Wayne Swan said the country's strong fundamentals allowed it to go through the economic turmoil unscathed.

Nevertheless, the International Monetary Fund has warned Australia of its efforts targeting a surplus in 2012.

IMF Warning

The International Monetary Fund (IMF) has warned the Australian government to be prepared to abandon its goal of returning to a budget surplus if the world economy continues to worsen, according to a report by "The Australian".

The warning came in a briefing to finance ministers and central bank governors attending last weekend's G20 meeting, which also contained a warning that some of the leading contributors to the Great Depression in the 1930s - namely reduced spending by households, businesses and governments worried about the economic outlook - are again weighing on efforts to resolve the growing crisis.

The IMF pointed out that too much saving limits the demand for goods and services.

"The overarching risk is of a global paradox of thrift as households, firms and governments around the world reduce demand," the IMF reportedly said.

The IMF said that Australia, along with Canada, Germany, South Korea and Britain, had solid plans for returning their budgets to surplus, but that short-term budget cutting measures may have to be eased if growth misses forecasts, according to "The Australian."

The Australian government has said it expects to return to surplus in 2012-2013.