Ratings agency Standard and Poor's has maintained Australia's sovereign credit rating at 'AAA', and raised its outlook to stable from negative on the expectation of the budget returning to surplus early in the next decade.
S&P says it also expects property prices will continue to cool without crashing, and that the housing market slowdown won't weigh heavily on consumer spending and the stability of the broader financial system.
"While our base case is for a soft landing, our ratings could come under pressure if house prices fall sharply and increase risks to fiscal accounts, real economic growth, and financial stability," S&P said in a statement.
The agency also said it could lower its ratings if it turned out the government, in its view, was unlikely to return a budget surplus within the next five years.
"Australia's weak external position means that its other sovereign credit factors, including the fiscal factors, need to be strong to keep the sovereign rating at the highest level on our scale," S&P said.
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"A stronger fiscal position would also be a strong buffer to absorb the consequences of an abrupt weakening of the housing market and the vulnerabilities that event could bring to financial stability."
Also, the potential for falls in commodity prices such as iron ore have receded but still remain, the agency warned.
The budget is unlikely to show a surplus before 2021, S&P said, because of state government infrastructure spending.
