AUSTRALIAN ECONOMIC GROWTH SET TO SLOW OVER NEXT DECADE.

CANBERRA, March 3 Asia Pulse - Economic growth in Australia could struggle to reach three per cent over the next decade, well short of expectations, new research has found.

But in some good news for the government, the Australian Industry Group (Ai Group) report also found that the unemployment rate can fall further without necessarily pushing up inflation.

"In contrast to some predictions that Australia has already reached the point where unemployment cannot fall further without triggering inflationary pressures, our analysis is more circumspect," the Ai Group's How Fast Can Australia Grow? report says.

"We find that there is further scope to test our ability to reduce unemployment and underemployment before we see wage pressures fuelling inflation."

But the report, the third to be produced since 1995, estimates that economic growth will slow to 2.9 per cent a year to 2017, down from the 3.2 per cent annual average from 2001 to 2007 and the 4.2 per cent recorded between 1996 and 2000.

It blames the slower pace on dropping productivity and the skills shortage, and warns that immigration is critical to bring in more workers.

"While a consistent pace of close to three per cent is not to be sneezed at, for a country that around a decade ago was dubbed 'the miracle economy' it is an outlook that will fall well short of expectations," Ai Group chief executive Heather Ridout said.