Australia ‘Rock Solid’ in Midst of Global Crisis, Swan Says

Australia is facing the current global economic turmoil from a position of strength, with low unemployment, a strong banking system and a big investment pipeline, Treasurer Wayne Swan said today.

“The international economy has entered a dangerous new phase,” Swan wrote in his weekly e-mailed economic note. Still, Australia’s “successful response to the global financial crisis and record of economic reform means our fundamentals today are rock solid.”

Global markets are in turmoil on fears that a default by Greece will exacerbate an 18-month debt crisis and tip Europe and the global economy back into recession. The International Monetary Fund cut its forecast for global economic growth this month and predicted “severe” repercussions if Europe fails to contain its debt crisis or if U.S. policy makers reach an impasse over a fiscal plan.

European governments are exploring speeding the start of a permanent rescue fund for their cash-strapped economies and senior finance officials will examine next week the cost advantages of setting up the fund, known as the European Stability Mechanism, a year earlier than its currently planned July 2013 start, according to a document prepared for the meetings and obtained by Bloomberg News.

Same Determination

“Major economies need to deal with the current challenges with the same determination that saw us stare down the global financial crisis,” Swan wrote in his note from Washington, where he attended meetings of the Group of 20 finance ministers, the IMF and the World Bank.

“While the Australian economy has grown over 5 percent since the crisis struck, many of our peers still haven’t made up the ground they lost,” Swan said.

Australia’s gross domestic product expanded more than economists forecast last quarter, driven by rising consumer spending and a rebound in exports after natural disasters disrupted coal mining at the start of the year. The economy will grow by 1.8 percent this year, the Washington-based IMF said last week.

The U.S. economy will expand 1.5 percent this year, and Europe 1.6 percent, assuming volatility in financial markets doesn’t worsen and U.S. authorities agree on a fiscal plan that both supports the economy and outlines fiscal consolidation over the medium term, the IMF said.

‘Political Phase’

A deadlock in the U.S. Congress over extending the nation’s debt limit and trimming budget limits brought the world’s biggest economy to the brink of default on July 31.

“The crisis has now entered a new ‘political phase’ with markets calling for swift action by policy makers,” Swan said. “Even though we are likely to see bouts of instability continue for some time to come, we need to remember that our situation couldn’t be more different to many of our peers.”

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net