The most significant risk to Australia's economic outlook in 2011 is most likely external, with the nation now more closely hitched to the developing world in general and to China in particular, a chief economist has said.
"This is a great story for Australia and it has a long way to run yet. In exporting more to the developing world, however, Australia is also importing more volatility," BT Financial Group chief economist Chris Caton said.
"While I have suggested that any slowdown in China will be temporary, one cannot rule out a more prolonged episode. Perhaps there are serious property bubbles there. Possible civil unrest will become a serious issue one day soon.
"Of course, we always think of risks as things that can go badly, rather than things that may lead the economy on the forecast path. And there is one big risk in the favourable direction."
Meanwhile, MLC & NAB Wealth investment strategist Brian Parker said managing a resources boom was going to be a challenge for policy makers well beyond 2011.
"The big issue facing the Australian economy in 2011 is likely to be the same one that has faced the economy and policy makers for much of the past five years or so," Parker said.
"How do we continue to accommodate China's - and increasingly India's - insatiable demand for resources and the investment boom that has been triggered by that demand?"
In order to accommodate the resources boom, he said growth elsewhere in the economy probably had to slow to essentially make room for the mining boom.
"It means fiscal policy needs to be tightened and interest rates probably need to rise a little further," he said.
"Longer term, at some point the composition of Chinese growth is likely to change, with consumer spending taking over from investment and exports as a key driver of growth.
"When that happens, demand for our resource exports is likely to moderate, particularly for iron ore, which is, by far, our biggest export to China. However, that moderation is likely to be some years away."
