The Reserve Bank of Australia has indicated for the first time it expects Australia's economy to sink into recession this year.
The central bank's deputy governor, Ric Battellino, said gross domestic product is likely to be negative in 2009.
In its quarterly statement on monetary policy in February, the bank tipped growth of 0.5%.
Mr Battellino said on Tuesday that recent interest rates cuts and other measures had gone a long way.
However, he said the reality is Australia cannot fully insulate itself from what is happening elsewhere in the world.
Though house prices fell on average 3% in Australia last year, the local property market performed better than in Britain and the United States where prices fell about 20%, Mr Battellino said.