Global disasters will likely impact the Australian economy through the fourth quarter of 2011, with its expansion projected to be hampered by sluggish pace that experts said should commence by the second quarter of the year.

According to the latest Westpac/Melbourne Institute Leading Index, natural calamities that hit many countries since December last year, largely contributed to the decline of the country's leading index to 3.5 percent in January this year, coming from the 4.6 percent seen in the previous month.

Experts said that the index is being used by economists to gauge the possible movement of economic activities three to nine months into the future, which Westpac said currently hovers a bit slightly from its long term trend of 3.3 percent.

In a statement issued on Wednesday, Westpac senior economist Matthew Hassan said that the January index pointed to suggestions that the economy has started absorbing the dire effects of the severe weather systems that struck Australia from December to February.

Hassan further explained that "the monthly fall in the growth rate dip is likely to be followed by more volatility in coming months as the initial hit from the Queensland floods drops out but we see negative impacts from other events."

He singled out Cyclone Yasi that rolled through Australia in February and the magnitude 8.9 quake and tsunami that ravaged Japan last week as events that "will make getting a read on underlying economic trends more difficult than normal."

Westpac said that the leading index's annualised growth rate decelerated by 2.4 percentage point from the 5.9 percent recorded in August last year to the 3.5 percent posted in January this year.

The slide, according to Hassan, was mainly due to weakening commodity prices that slipped by 1.4 percentage points during the period while dwelling approvals across the country declined by 0.6 percentage points.

The indicators so far do not paint a rosy picture for the Australian economy, Hassan said, who added that more volatility could be seen "in some of these monthly components in the first half of 2011."

Westpac noted too that while the Australian sharemarket and dwelling approval may experience some form of recovery in February, the devastating Japanese earthquake and tsunami, plus the danger of a nuclear meltdown dangerously closing in could mostly offset the gains this month.

Hassan pointed out that Australian shares have been taking a beating in March as stocks dipped during the first 15 days of the month.

More from IBT Markets:
Newsletter: To receive Global Markets update, sign up here