Just hours before releasing his first budget, Treasurer Scott Morrison has been warned commodity prices still pose a threat to the economic outlook.
Mr Morrison is expected to upgrade his forecast for the iron ore price from the $US39 per tonne predicted in his mid-year budget review in December.
The price has been up to $US70 per tonne in recent weeks, potentially adding billions of dollars to national income.
But the International Monetary Fund believes aside from the direct hit from weaker Chinese imports on the Asia region, that would be compounded by the further potential drop in some commodity prices.
That would have a further negative impact on the growth prospects of commodity exporters like Australia, the IMF said in its regional economic outlook for Asia and the Pacific released in Hong Kong on Tuesday.
"Asia remains the most dynamic part of the global economy but is facing severe headwinds," the IMF says.
The global recovery is still weak and global trade is slowing, while China's transition to more sustainable growth will continue to have a short-term impact.
While noting the growth pick-up in Australia in the second half of 2015 through a robust labour market and residential investment, the IMF expects a below-potential expansion of 2.5 per cent in 2016, a downgrade from the 2.9 per cent it forecast six months ago.
It forecasts three per cent growth in 2017, down only slightly from its previous prediction of 3.1 per cent.
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