An economic forecaster says China, not the local housing market downturn, could be the major swing factor for Australia's economy in the year ahead.

Key points: Deloitte Access Economics is forecasting economic growth to be "pegged back" in Australia and across the globe in 2019

Deloitte Access Economics is forecasting economic growth to be "pegged back" in Australia and across the globe in 2019 Report author Chris Richardson says low unemployment means the housing downturn is less dangerous than it otherwise would be

Report author Chris Richardson says low unemployment means the housing downturn is less dangerous than it otherwise would be A seperate report from CommSec ranking the state and territory economies has Victoria and New South Wales sharing the top spot

In its outlook for the year ahead, Deloitte Access Economics forecasts a "still growing, but slowing" scenario for the global and national economies.

The business outlook report flags that global economic growth "may be pegged back to rather more pedestrian rates through the course of 2019 and 2020", as the impact of tax cuts fades in the US and China's slowdown accelerates.

Locally, Deloitte sees mounting challenges from a "mini-credit crunch", drought and falling housing construction activity but describes it as still "a pretty happy set of circumstances" for Australian businesses and households".

"The summary is Australia is doing fine, we probably won't do as well in 2019 as in 2018, 2017, but the basic backdrop is OK," said report author Chris Richardson.

"What you need to watch is more China than housing prices.

"If something were to go wrong, it would likely start with a deeper downturn in China that the authorities would have a bit more of a problem with, and that spilling over into higher unemployment and greater pressures on house prices here in Australia."

However, Deloitte Access Economics' central case is not for that downturn to occur in 2019.



Housing price falls from 'stupid' levels inevitable

After national housing prices declined nearly 5 per cent during 2018, Deloitte's Chris Richardson expects the property market to continue to head backwards at "a pretty fair rate of steam" over 2019.

"It always had to happen — housing prices, particularly in Sydney and Melbourne, just went to absolutely stupid levels," he said.

Mr Richardson does not believe there has been broader economic damage from the housing downturn so far, given it is occurring as unemployment remains at low levels.

However, he said it is not without risks.

"If things were to get worse in China and you saw housing price falls in Australia accelerating, that could be a dangerous combination."

Avoid permanent promises on temporary good news: Deloitte

Federal Treasurer Josh Frydenberg is forecasting a $4.1 billion surplus, when he hands down an early budget in April, boosted by coal and iron ore demand from China.

However, Chris Richardson warned that the China boost could be short-lived and said politicians should avoid "permanent promises off the back of temporary good news" as a federal election looms in the coming months.

"[Coal and iron ore prices are] looking good precisely because China is weakening, leading that nation to pump stimulus into construction," he said.

"That plays to the sweet spot of company profits and company tax here in Australia, but it shouldn't lull you into a false sense of security as to where tax revenues head over time."

Short-lived mining profits are not the only risk to Australia's tax take — Deloitte Access Economics sees weakening bank profits and rising global interest rates are also contributing to a potential "kryptonite" combination for company tax.

For Australian households, wage growth remains stagnant and, while Deloitte is tipping a recovery, it expects it to occur at the pace of "the snail rather than the sprinter".

The current state of the state economies

On the state and territory level, Victoria and New South Wales continue to outperform their counterparts, with a seperate report from CommSec ranking the two states equal first for economic performance.

Victoria and NSW share the top spot in CommSec's ranking of economic performance. ( Supplied: CommSec )

"Both states have broad-based economic strength, underpinned by population growth, construction and investment activity," noted CommSec.

"Strong job markets provide support for local economies but home building will soften in the period ahead."

Population growth also helped the ACT and Tasmania retain their third and fourth positions in CommSec's ranking, followed by South Australia and Queensland.

Western Australia and the Northern Territory continue to bring up the rear, with both "facing ongoing challenges with the transition of resource projects moving from the production to the export phase", according to CommSec.

In its report, Deloitte Access Economics described the end of a "two-speed economy", noting easing growth gaps between the states and territories, as house prices ease.

"We're now entering what looks likely to be calmer waters, with house prices relearning the laws of gravity, and with miners finally starting to spend a little more on developing new mines than they have in many a year," said the Deloitte report.

"That said, differing approaches to migration policy look set to see Victoria move more consistently ahead of NSW in the state growth stakes."