The re-emergence of a resources boom is expected to improve the budget bottom line, taking pressure off the Rudd government with debt to peak well short of previous predictions.
But borrowers are expected to bear the brunt of the recovery with Access Economics warning interest rates will rise to "above normal" levels as the economy picks up pace.
The return to rapid industrialisation in China and other resource-hungry countries has led to a boost in key commodity prices, reinvigorating Australia's economic landscape, Access said in its latest Business Outlook report.
"By late 2010 and in 2011 Australia may find itself back where it was in mid-2008 - both a beneficiary and a victim of a fully fledged resources boom," the report said.
Rising commodity prices will also take pressure off the government, with Treasurer Wayne Swan now expected to reveal a deficit well below previous estimates when he delivers his third budget on May 11.
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Access said the government's stimulus measures, including infrastructure spending on schools and public housing, and the next phase which sees money spent on roads and rail and which will gather pace in 2010, would ensure the deficit remains high.
"However, renewed resources boom conditions will boost the tax take in 2010-11, and that effect will build in 2011-12."
"Treasury's next two updates - the budget and the pre-election statement - will boost revenue projections as a result, and so public debt will peak well shy of current official projections."
While the rebound in the resources sector is expected to result in a lower budget deficit, taking some pressure off the government, the pace of the recovery is also likely to see consumers face a string of interest rate rises.
The Reserve Bank of Australia (RBA) is already hiking rates after having adopted emergency levels during the global financial crisis.
The rapid pace of the recovery and upward pressure on inflation is likely to see the RBA put the brakes on the economy, pushing rates back up towards the peak of 7.25 per cent reached in mid-2008.
"In effect, the Reserve Bank took out insurance against big downturns here in Australia, but only a moderate one eventuated," Access said.
The economic forecaster said rates won't necessarily reach the mid-2008 level, adding that with the benefit of hindsight, the RBA probably thinks it overdid it in setting interest rates as high as it did.
"However, looking ahead, the (RBA) may well have to move beyond simply returning interest rates to normal. It may need to go above normal."
Access said that although the resource sector would soon be back at full pace, other areas of the economy would take longer to recover, capping rates at about 5.5 per cent in the first half of 2011.
The return of the resources boom will keep upward pressure on the Australian dollar and interest rates as national income grows rapidly and unemployment falls back below five per cent, Access said.
Improvements in unemployment will, however, again expose problems around skills shortages in the Australian labour force.
"It will also re-establish the dividing lines in Australia's two-speed economy, increasingly benefiting Western Australia and Queensland versus other states, and benefiting the resource sector and those who sell to it."
