Australia's economy is pegged to remain strong, but faces a number of downside risks and a major economic challenge going forward, the World Trade Industry has warned.
The WTO Secretariat's latest review of Australian trade policies and practices outlines a number of threats to economic stability.
These include global financial fragility and the reliance of short term debt coupled with the growing indebtedness of households.
The economy is also developing an increasing dependence on mining, amplifying its exposure to commodity prices, the report states.
WTO said the mining boom, as well as the appreciation of the Australian dollar, now leaves Australia with a key economic challenge – developing policies to take advantage of, rather than impede, adjustment to the effects of its new trade circumstances.
The strength of the dollar could also impede the competitiveness of non-mining exports and sectors that have to compete with imports.
Longer-term challenges include an ageing population and addressing climate change.
But strong demand for commodities, a flexible exchange rate and a healthy banking sector kept the economy relatively buoyant during the economic crisis, and in good shape to weather the coming challenges, the report states.
WTO estimates that growth slowed from 3.8% in FY08 to 1.4% in FY09 - a lower decline than most other advanced economies - and rebounded to 2.3% in FY10.
The government's policy response, which was described as “timely and appropriate” also helped stall a backslide.
But the withdrawal of stimulus package funding is named as another downside risk to economic growth going forward.