Australia's central bank has slashed its 2011 growth forecast from 4.25 percent to 3.25 percent, warning the coal industry's recovery from floods was slower than hoped and consumer spending was cooling.
"A little more than half of this downward revision reflects the slower-than-expected recovery in the Queensland coal industry, with most of the remainder reflecting slower expected growth in consumption," the bank said.
Downside risks to the global economy had also risen in recent months, according to the Reserve Bank of Australia, with financial markets rattled by debt worries in America and Europe and overheating in Asia.
The stark warnings came as global markets suffered massive selling pressure, including a four percent loss in Sydney by noon.
"While the central scenario of most forecasters remains for growth to be at, or above, average over the next year or so, the downside risks to this outlook have increased," the bank said in its quarterly statement on monetary policy.
"Recent measures have reduced the near-term pressures on the public finances in the United States and in a number of European countries, (but) significant concerns about debt sustainability remain."
In contrast, the RBA said surging inflation and signs of overheating were emerging in developing economies including Asia.
Though slowing global growth had tempered commodity prices somewhat, their boom in the past year was flowing through to consumer prices, elevating inflation "in almost all countries" -- even those with high unemployment.
Inflation in Australia was expected to ease from the relatively high 3.6 percent year on year in the three months to June 30 -- primarily driven by food prices following the floods and cyclones.
However, the bank forecast it to remain at or above three percent into 2013, with the introduction of a pollution tax likely to boost underlying inflation by 0.25 percentage points.
Growth was seen at or above trend in 2012-13, but balancing the mining and non-mining sectors of the economy and commodities-linked surge in the Australian dollar would remain a real challenge, the bank said.