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Australia to dodge European crisis: central bank chief

He said most reason will be due to strong Asian demand for its raw materials. -AFP

Wed, Jun 09, 2010

SYDNEY, AUSTRALIA (AFP) - Australia will dodge Europe's worsening financial turmoil due to strong Asian demand for its raw materials, which also pulled it through the global downturn, the central bank chief said Wednesday.

Reserve Bank of Australia (RBA) governor Glenn Stevens also said the

European market was shrinking in importance and tipped China's gross domestic product to outstrip the eurozone within five years.

European finance ministers this week agreed a 525 billion dollar fund for debt-stricken nations and a right to oversee national budgets in response to the deepening crisis, which has hit Greece and Spain especially hard.

"The (European) episode is not yet over, and the issues will continue to need careful handling by all concerned and close monitoring by the rest of us," Stevens warned.

"It cannot be denied that the potential for further financial turmoil exists," he said.

Stevens added that it was "hard to see how euro (zone) demand won't be weakened" in the next couple of years, and warned that Europe's sovereign debt troubles would weigh on world growth in 2011.

But the governor said Australia was likely to be little affected by ebbing European demand, with its strong banking system, credible fiscal and monetary policies and little exposure to the most troubled nations.

"This doesn't mean there will be no effects. But these factors put us in the best position to ride through this particular event, even if it does get worse," Stevens said.

Resource-rich Australia skirted the financial crisis due to strong exports to Asia, which helped it become the only advanced economy not to enter recession and the first to raise interest rates.

Stevens added that the rapid rebound in Asia's economies and demand for raw materials had shored up the nation's strong economic position, with low public debt and easing deficit.

He said China and other Asian economies were forecast to slow in the coming year, "because the pace of growth over the past year can't be sustained without problems arising".

But he added: "It is increasingly apparent that the Asian region is becoming large enough that it has a tangible independent impact on the global economy and on Australia in particular."

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