The Reserve Bank is forecasting a slow but orderly return to above-trend growth and for inflation to return to target within three years, but economists and the International Monetary Fund warn that risks remain.
The RBA trimmed some of its economic forecasts in its quarterly Statement on Monetary Policy, released on Friday, following the surprise 0.5 per cent fall in growth in the September quarter.
The central bank expects growth of 1.5 per cent to 2.5 per cent in the year to June 30, down one per cent on its November forecast.
The RBA remains open to a possible return to above-trend growth by the end of 2017.
But it expects growth to be between 2.75 per cent and 3.75 per cent in 2018, down 0.25 per cent from its previous forecast.
"The outlook for the domestic economy is little changed from three months ago and the ongoing adjustment to the end of the mining investment boom is expected to continue," the RBA's statement said.
The Reserve Bank said despite a softening of household spending and a fall in the terms of trade, growth will come from rises in liquefied natural gas exports, higher non-mining business investment, and a rebound in housing investment.
The RBA forecasts consumer price growth, inflation, to rise from the current 1.5 per cent to two per cent by the end of 2018.
Meanwhile, unemployment is expected to remain steady around 5.8 per cent until 2018.
Capital Economics chief economist Paul Dales said the central bank's forecasts are possible but they sound "a bit too perfect", especially as any significant rise in non-mining investment is unlikely occur.
"The RBA is almost assuming that the economy performs perfectly from here. This rarely happens and we believe the RBA will ultimately be disappointed," he said.
Commonwealth Bank senior economist Gareth Aird was also wary of the RBA's forecasts, saying the economy would have to be in very good health if they were achieved.
"While we think they are possible, they look a best case scenario and the risk is that growth outcomes undershoot the Bank's forecasts," he said.
The International Monetary Fund (IMF) also warned in a new report on Friday there were significant risks and uncertainties that could impact Australia's robust economic growth and low unemployment.
The IMF executive board said risks include weaker-than-expected household consumption, vulnerabilities in the housing market, a rise in protectionist trade policies in the global economy and a slowdown in the economies of Australia's major trading partners.
"Against this background, directors stressed the importance of maintaining supportive macroeconomic policies, addressing macro-financial vulnerabilities, and boosting long-term potential growth," the IMF said in the report.
