Bloomberg News

Australia Says Budget, Economy May Be Affected by Global Slump

October 12, 2011

Oct. 12 (Bloomberg) -- Australia’s budget is likely to be affected by global instability and the resource exports driving the nation’s economy are vulnerable to a slump in overseas demand, Treasurer Wayne Swan said.

“Despite our fundamental strengths, we know that the Australian economy and our budget will not remain untouched from global instability,” Swan said in a statement today. “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.”

The comments reflect an unresolved European sovereign-debt crisis, elevated U.S. unemployment and a tumble in shares that’s wiped more than $6 trillion of stocks worldwide this year. Swan said Europe needs to restore market confidence in its capacity to meet debt obligations and that the U.S. must make “tough decisions” on spending and tax measures.

“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,” Swan said in the statement to parliament in Canberra. “That’s why international engagement is just as important now as it was at the height of the global financial crisis.”

Australia’s budget deficit was narrower than forecast in the year through June as a reduction in spending offset lower- than-estimated tax revenue. Prime Minister Julia Gillard has pledged to return to a surplus in 2013, an election year.

Demand from developing nations such as China and India for iron ore, coal and natural gas is driving the economy.

That has spurred the nation’s currency, which reached $1.1081 on July 27, the highest since it was freely floated in 1983. It fell about 10 percent last month amid speculation Greece will default and spark a repeat of the 2008 credit freeze.

Swan urged developing nations to boost domestic drivers of expansion and move to more flexible exchange rates to help increase and rebalance global growth.

“I argued this case directly to Chinese leaders on my recent visit to Southern China, as well as at recent IMF and G20 meetings in Washington, and I’ll continue to do so at this week’s G20 meetings in Paris,” he said, referring to the International Monetary Fund and the Group of 20 economies.

--Editors: Sunil Jagtiani, Cherian Thomas

To contact the reporter on this story: Michael Heath in Sydney at

To contact the editor responsible for this story: Stephanie Phang in Singapore at

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