The International Monetary Fund has praised Australia for maintaining better economic growth than other developed nations, but argued more could be done to minimise housing sector risks.

Key points: "The balance of risks has improved but is still tilted to the downside": IMF

"The balance of risks has improved but is still tilted to the downside": IMF IMF warned sharp slowdown in China could trigger a housing correction

IMF warned sharp slowdown in China could trigger a housing correction Calls for low interest rates and more infrastructure spending

The IMF said Australia has been subject to the "new mediocre" of low growth, stubborn under or unemployment and weak wage increases that has afflicted most of the developed world.

"Wage and price pressures are weak, underemployment has risen, and non-mining investment is yet to fully recover," the Washington-based institution observed in its latest update on Australia's economy.

The IMF did note that Australia has maintained stronger growth than most other advanced economies.

However, it also warned that Australia remains vulnerable to a downturn in global or domestic economic conditions.

"The balance of risks has improved but is still tilted to the downside," the IMF cautioned.

"A major concern is that external risks with a large impact, including a sharp growth slowdown in China, could interact with or even trigger domestic risks, especially a housing correction."

Lending limits cool hot housing but tax reform would help

The fund said that measures by the bank regulator - the Australian Prudential Regulation Authority - have helped to mitigate the risks of a housing bust.

"APRA's prudential measures introduced in late 2014, including tighter lending standards focusing on debt serviceability, have improved the risk profile of new loans," the report observed.

"Overall housing credit growth and market turnover have remained lower than last year."

However, it said APRA may need to intensify these home loan limits if investor and other risky lending reaccelerated.

Echoing a research paper released by the IMF last week, the organisation also advised that Australia could reduce housing tax breaks to further stabilise the property market.

"The macro-financial resilience of the economy to housing market shocks could be enhanced through tax reform," it argued.

"The tax system provides households with incentives for leveraged real estate investment that likely amplifies housing cycles."

Government should ready infrastructure plans for stimulus

That would help facilitate continued low interest rates, which the IMF said are still needed to support Australia's economy.

"Ensuring the return to full employment under weak global conditions will need continued accommodative monetary policy and quality infrastructure spending, which will also boost long term growth potential," it noted.

It also advised the Federal Government to have plans in place in the case of a sudden economic deterioration, as the Reserve Bank is running out of monetary policy ammunition.

"Unlike in previous downturns, monetary policy may soon be constrained by the lower bound on nominal policy rates," the IMF concluded.

"Contingency plans and a pipeline of infrastructure projects would help in reducing the implementation lags involved in undertaking fiscal stimulus."