Deloitte Access Economics has upgraded its 2012 gross domestic product outlook for Australia on Monday. The research firm projected that the country would expand by 3.6 per cent this year, up from 2 per cent in 2011.

The company's forecast is a contrast to its gloomy global outlook due to the European debt crisis which Deloitte dubbed as Eurogeddon.

Due to the impact of the European Union's debt crisis on financial markets around the world, Deloitte warned that it would also affect Australia in some ways despite the generally bright outlook.

Chris Richardson, director of Deloitte, pointed to a possible unemployment rate of 6 per cent, a delay in a return to a budget surplus, could drive mortgage rates higher and impact negatively company profits.

"Its (Europe's) mismanaged crisis means the euro could falter and that banks could go bust, sending shockwaves around the world," AAP quoted Mr Richardson.

"Yet it is still marginally more likely that the eurozone muddles through this crisis, with sticky tape holding the euro together and ECB (European Central Bank) funding to banks helping to keep the market from the sovereign debt door," he added.

Mr Richardson sees two scenarios for Australia.

First is if the world avoids a second global crisis, Australia could expand faster and achieve the 3.6 per cent GDP growth due to the ongoing resources boom and an improvement in coal output.

Second, if the worst case scenario takes place, unemployment rate would go up to 5.3 per cent in June from 5.2 per cent in December 2011, and further worsen between 5.4 per cent and 6 per cent in the next four years.

Such a scenario would also result in the Gillard government failing to achieve its target of a $1.5-billion budget surplus in 2012/13 by at least one year.

Deloitte said that if the world would survive through Eurogeddon, Australia's economy would likely grow faster than expected, which would lead the Reserve Bank of Australia (RBA) to keep interest rates flat.

However, a worsening eurozone crisis would spur the RBA to cut overnight cash rates early and often.

The index made by Credit Suisse Group foresees RBA Governor Glenn Stevens further cutting the key lending rate by 25 basis points to 4 per cent at the Australian central bank's next meeting on Feb 7.

"Although wage growth is expected to remain restrained outside of resources, that may not provide the degree of protection the Reserve Bank would like to see for Australian inflation.... Until Europe does or doesn't blow, the Reserve may be best to sit on its hand. It can always move fast if it needs to," Deloitte said.

Last week, the World Bank had warned countries to prepare for chaos over a new global financial crisis anticipated to be worse than the 2008 due to the European debt contagion. Due to the expected global economic slowdown, the World Bank downgraded global growth rate projections to 2.5 per cent for 2012 and 3.1 per cent for 2013 from 3.6 per cent for both years.

Deloitte, in its third quarter 2011 Asia Pacific Economic Outlook report said that Australia's path to recovery was slower than anticipated which would result in lesser GDP growth rate.

RELATED STORIES