A global slowdown is seen as the main risk to growth, though the best efforts of international policymakers could stave off that worst-case scenario.

A Reuters poll of 24 economists conducted on Friday found a median chance of a recession in Australia over the next year of 20 per cent. Forecasts ranged from five to 60 per cent, with only one analyst forecasting a greater than 50 per cent chance of a recession.

The already accommodative stance of monetary policy is helping to underpin demand, and the Reserve Bank is widely expected to cut rates again in the next few months to insure against a sharper downturn. Consumer and business confidence is still relatively healthy, and most indicators of demand such as retail sales remain firm. But there are signs the housing sector may be peaking after two monthsof falls in housing finance figures.

The government has forecast economic growth of 2.75 per cent for 1998-99 (July-June), while private sector analysts are forecasting 2.5 per cent growth.

"We have reasonably low interest rates in Australia and that's supportive, we have a strong financial sector, and growth is continuing," said Colonial State Bank chief economist Craig James.

"However, we can't totally rule out recession, if the U.S. and European economies slow significantly," he said.

Crucial to the outlook remains the engine of the U.S. economy, and hopes there have risen with the Federal Reserve's aggressive two recent easings and keen awareness of the risks in the financial sector.

The greatest threat to the U.S. economy is if the tightening in credit conditions seen in debt markets spills over into a credit crunch in the banking sector. That would crimp business investment, one of the key drivers of economic growth, and could lead to a possible recession.

Some analysts believe the Fed'svigilance will pay off in averting a crisis.

"You can bet that the Fed will be jawboning those bankers, telling them not to panic and that rates will be coming down further," said GIO Australia chief economist Akis Haralabopoulos.

Fed officials have signalled in the past week that markets can expect further rate cuts in the months ahead.

But some analysts argue that a credit crunch could develop in Australia, raising the odds of an economic downturn.

"It's not just the U.S. after the tightening in financial conditions, banks here may tighten up availability and business will find it more difficult to borrow," said J.P. Morgan senior economist John Kyriakopoulos, who puts the chance of recession at 35 per cent.

Another risk to the domestic economy would be if the Reserve Bank of Australia dragged its heels in following the easing path, said CS First Boston chief economist Peter Horn.

"If the RBA gets behind the curve, pointing to technical factors like still-healthy credit aggregates or waiting foranother quarter's inflation readings (in January), they could be leaving it too long.

"I think they need to do it sooner rather than later to make sure consumer confidence doesn't start falling," Horn said.

Analysts argue that with interest rates at generation allows, monetary conditions remain supportive of growth.

"There's no recession in Australia that I know of that's happened without monetary policy being tightened significantly first," said Deutsche Bank economist Richard Yetsenga.