UPDATE 1-Australia economy seen stretching record run as budget back in black

Australia is expected to extend its enviable recession-free run of growth into a third decade, the government said on Tuesday even as it downgraded forecasts for the current fiscal year and the next two years. Despite that, the government was able to forecast a return to budget surplus in 2019/20 starting July 1, the first since 2007/08 before the global financial crisis hit.

The improving budget position - the A$7.1 billion ($5 billion) surplus for 2019/20 was up A$3 billion from a December forecast - enabled the government to announce tax cuts and increased health, education and infrastructure spending ahead of a national election due to be called for mid-May. "Consumer spending, investment by businesses and continued demand for Australian exports are all expected to contribute to economic growth," the Treasury said in its budget paper, adding the government's tax relief measures and infrastructure spending would also support growth.

That view is likely to be shared by Australia's central bank, which is counting on some fiscal stimulus to boost a slowing economy and lift weak consumer spending. Earlier on Tuesday, the Reserve Bank of Australia (RBA) kept rates at a record low 1.50 percent for a 32nd straight month.

It dropped a previous call for 3 percent economic growth this year, following disappointing data for late 2018, but reiterated that the jobs market remained strong. Subdued economic data also led the government to downgrade its forecasts. Growth was projected at 2.25 percent in the current financial year, then 2.75 percent in the next two years.

Frydenberg pointed to some "clear and genuine risks" at home and abroad even as the base case was for the economy to continue its uninterrupted growth run. "The residential housing market has cooled, credit growth has eased and we are yet to see the full impact of flood and drought on the economy," he said.

Frydenberg also noted threats to Australia's export-heavy economy from global trade tensions and China's growth slowdown. The return to surplus together with the tax largesse failed to cheer investors with the Australian dollar trading near the day's low at $0.7074. The Aussie had slipped after the RBA's decision.

STEADY UNEMPLOYMENT Net debt, seen falling to 18 percent of gross domestic product (GDP) in 2019/20, is projected to be eliminated by 2029/30.

The unemployment rate, which fell to an eight-year low of 4.9 percent in February, is seen at 5 percent over the forecast period. Consumer price inflation is seen at 2.25 percent in 2019/20 before 2.5 percent the next year, within the RBA's 2-3 percent medium-term target.

Still, an increasing number of economists expect the RBA to cut interest rates later in 2019 largely due to a deeper-than-expected housing downturn. Home prices fell for a 17th straight month in March and are now down about 7.4 percent since peaking in October 2017. The losses are particularly steep in the biggest markets of Sydney and Melbourne, raising fears indebted households would further cut back on spending. ($1 = 1.408 Australian dollars) (Reporting by Swati Pandey; Editing by John Mair and Richard Borsuk)