FEARS of a Greek debt default and a worldwide recession are likely to see the Australian sharemarket open about 1.7 per cent lower this morning, futures traders predict.
Yesterday the Treasurer, Wayne Swan, played down the risk global turmoil posed for Australia, saying the local economy had outperformed Europe and the US in a "reality check for the doomsayers that have been talking our economy down".
But Mr Swan admitted the mining boom had created a "patchwork economy", putting pressure on manufacturing, tourism and retail.
Markets have been shaken by concern Greece may default on its debt this week, and they slid on Friday as investors sought safe havens. The US Dow Jones index slumped more than 300 points, or 2.7 per cent, to 10,992.
Fears have been fuelled by talk the German government may block an ?8 billion ($10.4 billion) aid instalment unless it is convinced Athens has delivered on an unpopular pledge to slash spending and raise taxes.
Such a move would force Greece to default on its bonds.
The investment bank UBS said in a global downturn Australia's booming minerals sector meant it should avoid following the rest of the world into recession, although growth would slump and unemployment rise.
But the UBS economist Scott Haslem had no good news for the stricken retail sector, saying consumer reluctance to borrow and spend was consistent with households moving to cut debt and "could persist for a number of years".
Group of Seven finance ministers and central bankers from the world's biggest economies promised to "take all necessary actions to ensure the resilience of banking systems and financial markets", but detailed no new policies at a meeting in France.
Fears that European policy makers were failing to prevent a Greek default and contain debt woes last week prompted investors to sell stocks and pushed the euro to a six-month low against the US dollar. European bank and sovereign credit risk reached new highs as 10-year treasury and German bund yields fell to record lows on demand for a haven.
Germany moved to insulate its banks against a possible Greek default and Juergen Stark's resignation from the European Central Bank exposed policy rifts aggravating the turmoil. Such shifts highlight the biggest risk to international expansion since the collapse of Lehman Brothers sparked the global financial crisis.
The disarray drew fire from the G7 as the US Treasury Secretary, Timothy Geithner, urged the Europeans to get their act together. Canada's Finance Minister, Jim Flaherty, suggested Greece could quit the euro.
Frequently Asked Questions about this Article…
How could a Greek debt default affect the Australian sharemarket and everyday investors?
The article says fears of a Greek debt default were expected to push the Australian sharemarket about 1.7% lower, as investors sought safe havens. For everyday investors that can mean higher market volatility, falling share prices and increased demand for lower‑risk assets during periods of global stress.
Why were futures traders predicting the Australian market would open around 1.7% lower?
Futures traders were pricing in the risk of a Greek debt default and concerns about a worldwide recession. Those fears had shaken global markets and prompted selling, which translated into expectations of a weaker Australian open.
What did Treasurer Wayne Swan say about the local economy amid global turmoil?
Treasurer Wayne Swan downplayed the direct risk to Australia, saying the local economy had outperformed Europe and the US. He also warned the mining boom had created a “patchwork economy” that was putting pressure on manufacturing, tourism and retail.
Can Australia’s mining boom protect the economy from a global downturn?
According to investment bank UBS quoted in the article, Australia’s booming minerals sector should help the country avoid following the rest of the world into recession. However UBS also warned growth would slump and unemployment could rise in a global downturn.
What did the article say about risks to the Australian retail sector and consumer spending?
UBS economist Scott Haslem warned that consumer reluctance to borrow and spend—part of households cutting debt—was bad news for the retail sector and could persist for a number of years, reducing demand for goods and services.
How did global policymakers respond to the market turmoil caused by Greek debt worries?
Group of Seven finance ministers and central bankers said they would “take all necessary actions to ensure the resilience of banking systems and financial markets,” but the meeting in France produced no detailed new policies, which left some uncertainty for markets.
Why did the euro weaken and government bond yields fall during the crisis?
The article reports that fears European policymakers were failing to prevent a Greek default prompted investors to sell stocks and move into safe‑haven assets. That pushed the euro to a six‑month low against the US dollar and sent 10‑year US treasury and German bund yields to record lows as demand for havens rose.
Which European developments added to market uncertainty in the article?
Market anxiety was fuelled by talk Germany might block an €8 billion aid instalment unless Greece met tough fiscal conditions—an action that could force a default. Germany also moved to insulate its banks, and the resignation of ECB official Juergen Stark exposed policy rifts that aggravated the turmoil.
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