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Australia says can weather storm as stocks plunge

06 august 2011, 14:11
Treasurer Wayne Swan on Friday insisted Australia could weather the global economic storm as stocks plunged four percent following carnage on US and European markets, AFP reports.

His reassurances came as the benchmark S&P/ASX 200 closed 171 points lower at 4,105.4, after the Dow Jones Industrial Average plummeted 4.3 percent Thursday. The market has lost 8.72 percent in the last four days.

The Australian dollar also took a hit, losing more than two US cents to 104.76, as fears deepened about the state of the US economy and the European sovereign debt crisis.

Swan said that in contrast, Australia's economic underpinning was strong.

"Australians should never forget that our economic credentials are among the strongest in the developed world and that Australia has a proven track record of dealing with global economic uncertainty," he said after the market fell at the open.

"And there is just a world of difference between the situation in Australia and the situation in Europe and the United States.

"Australia has low unemployment, a very strong investment pipeline, very strong financial institutions and we are located in the right part of the world at the right time."

But he indicated there was more pain in store for the United States and Europe.

"There is no doubt that there is a long and painful adjustment yet to take place in terms of the United States, particularly when it comes to dealing with their public debt and budget deficits," he said.

"And in Europe, also a period of adjustment, but growth is strong in the Asia-Pacific and that is why our prospects are fundamentally different."

Dubbed the "Wonder from Down Under" for its world-beating performance during the global downturn, Australia's economy has hit some turbulence in 2011, with natural disasters slashing growth and fanning inflation.

Consumer confidence slumped to recession levels in July, with the kind of monthly fall usually associated with a significant economic shock.

Manufacturing activity also contracted in July because of the strong local currency, falling prices and lower production, according to data this week.

Acknowledging the headwinds, the central bank slashed its 2011 growth forecast Friday from 4.25 percent to 3.25 percent.

CMC Markets analyst Ben Le Brun said the market was savaged on fears the US economy was sliding towards recession, while Europe's debt problems were intensifying.

"Everything that was leveraged to the global growth scenario was getting absolutely pummelled," Le Brun said.

IG Markets analyst Ben Potter called it "a bloodbath".

"For the first time since the (global financial crisis), we’re seeing genuine fear and panic rippling through global markets again," he said.

"Anyone who says they know where these markets are going is kidding themselves; this rout could end next week or in six months time, no one really knows.

"I think markets are finally starting to realise that there simply isn’t an easy way to recover from the mess that developed nations have got themselves into over the last five years."

Among major Australian companies, BHP crashed 4.84 percent while Rio Tinto slumped almost six percent. Commonwealth Bank was 2.7 percent lower and Westpac gave up 2.5 percent.

By Martin Parry

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