Mr Costello remains upbeat on Australia's prospects

The Reserve Bank of Australia is meeting on Tuesday to consider whether to follow the lead of Europe and the US in reducing rates, which have remained at 4.75% for over a year.

Economists say that a rising Australian dollar and the stubbornly sluggish world economy are threatening the solid growth the country has experienced, and that markets have already factored in a quarter-point cut.

Industry added its voice on Tuesday, as the Australian Industry Group's monthly performance of manufacturing index (PMI) - dropping 1.5 index points to 50.2 - showed output barely growing in June.

"Clearly this month's data reinforces that manufacturing is presently neutral with the likelihood of tougher times ahead," said Heather Ridout, deputy chief executive of the AIG.

Mixed signals

Australia has ridden out the global slowdown relatively comfortably, despite a punishing drought which continues to hammer the farming business.

Growth should top 3% this year, the government believes.

But the strength of the Aussie dollar - climbing on Tuesday to a four-year high of 67.34 US cents - has manufacturers and farmers worried that their exports are going to be priced out of the world market.

Even that might not be enough to sway the RBA, which announces its rate decision on Wednesday, despite recent smoke signals indicating a preparedness to cut the cost of borrowing.

Part of the underpinning for Australia's boom time has come from a surging housing market, which shows few signs of cooling down.