The Westpac-Melbourne Institute leading index report, which indicates the likely pace of economic activity three to nine months into the future, showed annualised growth of two per cent in June.
The long-run average since 1960 has been 3.9 per cent. The leading index has been below that level for five successive months.
The leading index in June slumped to its lowest point since July 2001, as the share market continued to slide, building approvals remained weak and US industrial production faltered.
It also was significantly lower than Australia's economic growth of 3.6 per cent in the year to March.
Westpac chief economist Bill Evans said weaker consumer spending and home building activity would contribute to an economic slowdown into 2009.
"The area of greater softness in the economy is the consumer," he said.
"Retail spending and the housing market - both the house building cycle and house prices - will be under pressure."
Westpac expects the Reserve Bank of Australia (RBA) to cut interest rates by 50 basis points in September from a present 7.25 per cent.
This would be the first easing since December 2001.
Evans said the RBA had historically cut interest rates by half a percentage point at the beginning of the rate cut cycle, as it did in February 2001 and July 1996.
"Once you move, you have to move decisively," he said.
"With rates well into the contractionary zone and global liquidity conditions deteriorating, there is a strong case for a larger first cut of 0.5 per cent."
The minutes of the RBA's August 5 board meeting, released on Tuesday, suggested economic growth was likely to have slowed in the June quarter, with low growth also possible in the September quarter.
Economists widely expect the RBA to cut rates by 25, rather than 50, basis points in September because the central bank is worried about near-term inflationary pressures.
