By Robert Carry

Australia will soon be back to almost full employment with skills shortages once again becoming a key constraint on economic growth, Treasury secretary Ken Henry has said.

His comments came after the Westpac-Melbourne Institute leading index, which indicated the pace of economic activity, clocked an increase of 1.7% - to take it to its highest level since August 2008.

The index highlighted a dramatic increase in overtimes along with increased share prices and rising profits.

According to The Australian Financial Review, Westpac chief economist Bill Evans said that the leading index had rebounded from the current latest downturn far more sharply than it did after the 1980s or 1990s recessions. He added that its levels indicated that growth could reach 4% next year.