Australia weathered the world recession well, and economic prospects are, overall, favourable both in the short and medium term. Managing the exit strategy from the global economic and financial crisis is less problematic than in most of the OECD thanks to the sound fiscal position and positive economic outlook, although the new upswing starts with inflation around the middle of the medium-term target and little spare capacity. Over the medium term Australia needs to ensure a balanced expansion in the face of a mining boom and potentially volatile terms of trade movements, and strengthen supply to ensure non-inflationary growth. This chapter assesses recent performance of the economy, the main sources of its resilience, the outlook, and monetary and fiscal policy stances. The chapter then highlights some key medium-term policy challenges: bolstering weakening productivity, boosting housing supply and further reducing risks associated with a likely widening of the current account to finance mining investments.