Australia's economic outlook improved slightly in December 2011, but the growth rate of future economic activity remains subdued, according to a survey released on Wednesday by Westpac Banking Corporation and the Melbourne Institute.

The annualized growth rate of the Westpac/Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was 2.3 percent in December, up from 1.8 percent in November.

However, the index remains below its long-term trend of 3.0 percent.

"Despite a slight up-tick in December, the growth rate in the Index remains relatively subdued after dropping back sharply from a 4.6 percent pace recorded in August," Westpac Senior Economist Matthew Hassan said in a statement on Wednesday.

"There was a loss of momentum over the second half of last year, with the growth pulse heading into 2012 materially below trend," he said.

"That said the index is pointing to sub-par growth rather than a more pronounced weakening."

Hassan said the weaker economic outlook would increase the chance of rate cuts by the Reserve Bank of Australia (RBA) by 50 basis points (bps) in 2012. "Overall, we expect a further 50 bps in easing with the next 25 bps cut likely to come in May,"Hassan said.