A potential worsening crisis in Europe is the biggest challenge facing Australia, but it's not as vulnerable as many other countries, a global agency says.
In its latest survey of Australia, the Organisation for Economic Cooperation and Development (OECD) on Friday said the economy had weathered the global economic crisis well, reflecting sound macroeconomic policies and strong demand from China.
"The outlook is positive, even though there are mainly negative risks stemming from the external environment, to which Australia is however less vulnerable than many other OECD countries," the Paris-based institution said.
The OECD forecasts the economy to grow at three per cent in 2013 after a robust 3.7 per cent expansion in 2012, and a moderate growth of 2.3 per cent in 2011.
Treasurer Wayne Swan said the OECD report was another reminder Australians had a lot to be proud of.
"Once again our economy stands tall amongst its peers, with 21 consecutive years of growth, robust economic fundamentals and a positive outlook in the face of acute global challenges," Mr Swan said in a statement.
The OECD said although Australia would be less vulnerable to a potential worsening in Europe's sovereign debt crisis, because of its low exposure to Europe, it did face risks from a substantial weakening of growth in China and other Asian countries.
"A sharper than expected slowdown in this part of the world would reduce exports, the terms of trade and, most likely, the real exchange rate," it said.
"Increased supply of resource production might also place downward pressure on commodity prices."
Even so, the OECD expects the government's tightening of fiscal policy, as it looks to return to a budget surplus in 2012/13, should dampen demand.
It expects activity to remain tepid in many sectors adjusting to a strong Australian dollar, and the boost in demand provided by the resources investment boom was expected to fade in 2014 because of the fall in commodity prices.