Australian economy to weather EU crisis: Official

Updated: 2011-12-14 07:55

(China Daily)

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SYDNEY - Australia is well-placed to weather the global economic turmoil from the fiscal crisis in Europe, which will probably slide into a recession next year, the nation's Treasury Secretary Martin Parkinson said.

"Europe will almost certainly return to recession next year, with the potential for it to be deep and drawn out," said Parkinson, the Treasury's top official, in the text of a speech on Tuesday in Sydney.

The Reserve Bank of Australia's (RBA) nine-member board reduced the benchmark interest rate by a quarter percentage point on Nov 1 and again on Dec 6 as inflation pressures eased and risks to global growth increased. Australia is headed for its worst annual jobs growth in 15 years as consumers boost savings amid concern about potential fallout from the fiscal problems in Europe.

"However, Australia can take some comfort from its starting position," Parkinson told the Sydney Institute. "We are located in the fastest-growing region in the global economy with a number of opportunities likely to present themselves over the next decade."

Australia's unemployment rate increased last month to 5.3 percent, matching the highest level this year.

Driving the domestic economy is demand from developing economies including China, Australia's biggest trade partner, for iron ore, coal and natural gas.

Europe's debt turmoil is cutting demand in China's biggest export market, and a Chinese government campaign to rein in property prices is slowing home sales and construction. Economic growth cooled to 9.1 percent last quarter, the least in more than two years, and an increase in exports in November was the weakest since 2009, excluding seasonal distortions.

The RBA could enter 2012 with an economy showing increased spare capacity that will reduce consumer-price pressures. RBA Governor Glenn Stevens on Dec 6 cited "considerable turbulence" in financial markets and an increased chance of a "further material slowing in global growth" after the RBA's first back-to-back rate reductions since 2009.

Resource projects valued at A$456 billion ($459 billion), driven by companies such as BHP Billiton Ltd, have cushioned a slump in manufacturing and services hit by a record currency and subdued consumer spending.

Heather Ridout, chief executive officer of the Australian Industry Group, who will join the board of the RBA on Feb 14, said on Tuesday that the gap between resource-related industries and other companies remains wide.

"Twenty percent of this economy is growing by 15 percent, and 80 percent is growing by 1 percent," she told Australian Broadcasting Corp. "The high dollar, the weakness in the housing industry, the consumer caution, the structural changes happening not just in manufacturing and tourism, but also in say retailing, in online purchasing and changing consumer taste, all these issues have distorted the" distribution of the benefits of growth, she said.

The RBA last month cut its forecasts for economic growth and inflation for the next two years as turmoil abroad makes domestic consumers wary about spending. Stevens lowered the overnight cash rate target to 4.25 percent from 4.5 percent on Dec 6.

Bloomberg News

(China Daily 12/14/2011 page16)