Volatility in global markets caused by the sovereign debt crisis in Europe shouldn’t damp confidence in Australia’s economic outlook, according to Treasurer Wayne Swan.
“The situation in Europe will continue to have an impact on our region, our economy and our budget bottom line,” Swan said in his weekly economic note published yesterday. “But Australians should remain confident about our prospects, based on our strong fundamentals, our very low debt, low unemployment and our massive investment pipeline.”
European leaders descended on Brussels at the weekend in a last-ditch effort to stamp out a two-year-old financial crisis that threatens to tip the world into a recession. Europe’s economy will expand 1 percent in 2012, compared with 4.3 percent in Australia where a mining boom is stoking the fastest pace of growth among Group of 10 currency nations, according to Bloomberg surveys.
Australia’s jobless rate was 5.2 percent in September versus 9.1 percent in the U.S., and 10 percent in Europe the month prior. Australia’s sovereign debt burden of 27 percent is the developed world’s second-lowest, according to data compiled by Bloomberg. The government estimates the nation’s pipeline of resource investment at A$430 billion ($446 billion), with about 40 percent of plans already at an advanced stage.
EU Deadline
European leaders have set a deadline of Oct. 26 to complete a plan to beef up the euro bailout fund, cut Greece’s debt without triggering a default, shield banks from the fallout and ensure Italy and Spain don’t succumb to the contagion.
Measures being considered include a boost in rescue funds to 940 billion euros ($1.3 trillion), deeper writedowns on Greek debt, and a demand that banks increase Tier 1 capital to 9 percent by mid-2012.
“European leaders must agree on a durable solution to address Greece’s excessive levels of sovereign debt,” Swan said in the e-mailed statement, adding that leaders also need to bolster the region’s banking system, build a “war chest” big enough to combat concerns about contagion, and agree on a credible framework for fiscal integration.
‘Potential for Downturn’
“Anything short of this will lead to greater market instability and the potential of a protracted downturn in Europe,” he said.
Bill Gross, the manager of the world’s biggest bond fund at Pacific Investment Management Co., said Oct. 4 that he favors investing in sovereign debt of nations including Australia that have the ability to raise monetary stimulus as the risk of recession increases.
Rising coal exports and resource investment should help shield Australia from a global economic slowdown emanating from the U.S. and Europe, Deloitte Access Economics said Oct. 19.
To contact the reporter on this story: Sarah McDonald in Sydney atsmcdonald23@bloomberg.net.
To contact the editor responsible for this story: Jim McDonald at jmcdonald8@bloomberg.net
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