The International Monetary Fund expects the Australian economy will contract by 0.2% in 2009.
The ABC reports the agency previously forecast annual growth of more than 2%.
Asia Pacific division head Ray Brooks, says the agency sees a weaker outlook as Australia will not be immune from the troubles facing the global economy.
He says the Government would be unwise not to put the federal budget into deficit as one way of helping revive the economy.
Mr Brooks also says there is considerable room for the Reserve Bank to help out through further interest rate cuts.
However, he says Australia is still well positioned compared to many other economies around the world.
