Australia's economic growth prospects are improving but the Organisation for Economic Co-operation and Development warns immigration policies, unexpectedly stubborn services inflation and escalating global trade tensions pose risks.
Outlining the threats to Australia's economic growth profile, the Paris-based organisation said weaker immigration could come at a cost.
"Policymakers should beware, in seeking to curb immigration to ease pressures on housing costs, of worsening labour shortages, including in house-building," the outlook read.
"An abrupt slowing of immigration would hinder consumption growth."
Immigration can help deal with labour shortages caused by aging populations. (Dan Peled/AAP PHOTOS)
Australia has experienced sharp growth in migration as borders reopened after the pandemic, with both the federal government and the opposition proposing or implementing measures to try and slow new arrivals.
Immigration can help countries like Australia deal with labour shortages in part caused by aging populations, the international body says.
As well as the possibility of an abrupt fall in immigration posing a risk to the nation's growth prospects, the OECD warned inflation could stay higher than expected and prolong the wait for interest rate cuts.
Interest rate cuts were possible "in the coming quarters", though unexpectedly stubborn services inflation could delay or slow the easing cycle.
"An easing of monetary policy should be possible in the coming quarters but may have to be slowed if services inflation remains elevated or if external developments result in further depreciation of the Australian dollar and upward pressure on goods prices," the report says.
In addition, as a small open economy, Australia was exposed to rising global trade tensions and a weaker Chinese economy.
The international body's analysis landed after Australia's weaker-than-expected economic growth report for the September quarter.
The economy expanded 0.8 per cent through the year to September, down from one per cent in June.
While a slightly weaker growth result than the Reserve Bank of Australia was anticipating, economists highlighted ongoing weakness in productivity growth as a lurking inflation risk that would keep the central bank cautious.
The OECD expects Australia's weak economy to improve on expectations of interest rate cuts next year as well as improving real wages, income tax cuts and extended energy payment assistance.
Its projecting GDP growth to pick up to 1.9 per cent in 2025 and 2.5 per cent in 2026.
While the OECD observed strong public spending was helping offset weak private consumption, it called for a "a degree of consolidation" in the medium term to deal with the looming budgetary pressures of an aging population.