Treasurer Wayne Swan said the economy could fall into a slump on par with the downturn Australia suffered during the global financial crisis if Europe's cascading debt crisis was not resolved.
TREASURER Wayne Swan said the economy could fall into a slump on par with the downturn Australia suffered during the global financial crisis if Europe's cascading debt crisis was not resolved.
In a call for world leaders to act quickly to resurrect global growth, Mr Swan also conceded Australia's budget could be threatened by events overseas.
Ahead of meetings with G20 finance ministers this weekend, Mr Swan said much more needed to be done to resolve market volatility and put the world economy ''back on track''.
''If the worst fears for Europe are realised this time, the impacts on our own economy could be just as severe as those in 2008,'' he said in Parliament. ''That's why international engagement is just as important now as it was at the height of the global financial crisis.''
While Australia's economy had bright growth prospects and was creating jobs, he warned that prolonged volatility on global markets could stymie the domestic economy by dragging on confidence.
The government has pledged to hand down a narrow surplus in 2012-13, but Mr Swan conceded the budget would be affected by a severe global slump.
''Despite our fundamental strengths, we know that the Australian economy and our budget will not remain untouched from global instability,'' Mr Swan said.
In 2009, the government moved to head off the effects of the crisis with a $42 billion stimulus package, but such a response would be politically difficult now.
Direct fallout from Europe's debt crisis has so far been contained to the sharemarket, hitting superannuation balances.
The prices of Australia's lucrative mining exports have remained healthy, avoiding the falls of 20 per cent seen in other resources such as base metals.
''Coal and iron ore prices - the commodity prices most important to the Australian economy - are holding up relatively well to date, but remain vulnerable to any sharp slump in global demand,'' Mr Swan said.
To address the global challenges, Mr Swan called on European nations to restore the health of their budgets, saying more than the ?440 billion ($A600 billion) bailout package was needed.
''Developed countries - in particular in Europe - need to put their budgets on a sustainable footing, while supporting growth where possible,'' he said.
''Europe needs to regain the confidence of markets in its capacity to meet its debt obligations.''
Mr Swan also pledged to put pressure on China to move away from its policy of holding down its currency, which placed other nations' exporters at a disadvantage.
The comments came as new figures showed consumer confidence had edged up amid growing expectations the Reserve Bank may cut interest rates on Melbourne Cup day.
Frequently Asked Questions about this Article…
What did Treasurer Wayne Swan warn about the Europe debt crisis and the risk to the Australian economy?
Wayne Swan warned that if Europe’s cascading debt crisis is not resolved, Australia’s economy could fall into a slump comparable to the 2008 global financial crisis. He stressed the need for rapid international action to resolve market volatility and keep global growth on track, noting the importance of engagement at upcoming G20 meetings.
How could Europe’s debt crisis affect everyday investors and superannuation balances?
The article says direct fallout so far has been largely contained to the sharemarket, which has hit superannuation balances. Swan cautioned that prolonged global market volatility could drag on confidence and therefore hurt the domestic economy — a scenario that would likely affect investments and retirement balances.
Are Australia’s mining exports and commodity prices safe if Europe weakens?
According to the article, prices for Australia’s key mining exports — notably coal and iron ore — have remained relatively healthy and avoided the steep 20% falls seen in some other resources. However, Mr Swan warned these commodity prices remain vulnerable to any sharp slump in global demand.
Could Australia’s government budget be threatened by a global slump?
Yes. The government has pledged a narrow surplus for 2012–13, but Mr Swan conceded that a severe global slump would affect the budget. He emphasised that despite Australia’s fundamental strengths, the economy and the budget would not remain untouched by global instability.
Would the government repeat the large stimulus it used in 2009 if a new slump hit?
In 2009 the government introduced a A$42 billion stimulus package to head off the crisis. The article notes that delivering a similar large stimulus now would be politically difficult, according to Mr Swan.
What international actions did Mr Swan call for to stabilise markets and restore confidence?
Mr Swan urged European nations to restore the health of their budgets and said more than the €440 billion (about A$600 billion) bailout package was needed. He called for developed countries to put budgets on a sustainable footing while supporting growth, and he also said Australia would press China to move away from holding down its currency to level the playing field for exporters.
What near‑term events should investors watch for signs of market stabilisation?
The article highlights upcoming G20 finance ministers’ meetings as a key moment for coordinated international action to reduce volatility. Investors should also watch European fiscal moves to restore market confidence, commodity price trends (especially coal and iron ore), and economic indicators such as consumer confidence.
How are interest rate expectations affecting consumer confidence and markets?
New figures cited in the article showed consumer confidence had edged up amid growing expectations that the Reserve Bank might cut interest rates around Melbourne Cup day. While the article doesn’t predict outcomes, it indicates that interest rate expectations are a live factor influencing sentiment and market behaviour.
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