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Europe's debt situation generates volatility in Australia's economy: Treasury
Date: 2010/6/3 Click: 1428
A senior Treasury official Wednesday told a Senate hearing the Australian economy could head either up or down because of global factors.

The fiscal situation in Europe could have an adverse effect locally while very strong data coming from Asia and India was an upside factor, Treasury's executive director David Gruen said.

The fiscal situation in Europe was clearly something that was going to play out over an "extended period of time" and generate bouts of market volatility.

"The fiscal situation in Europe is very serious and how that is resolved remains to be seen," Gruen told an estimates hearing in Canberra.

It was the largest obvious event that presented a downside risk to the Australian economy.

On the upside, very strong data was coming from Asia and east Asian economies including India.

"Despite recent falls in commodity prices, commodity prices remain at very high levels, in fact are consistent with further increases in negotiated prices for bulk commodities," Gruen said.

Australia central bank paused an interest rate rises on Tuesday, citing turmoil on global markets over Europe's debt crisis that had raised the specter of a double-dip recession.

The Reserve Bank of Australia left its official cash rate on hold at 4.5 percent. The decision followed mixed data on Tuesday, with April retail sales up a better-than-expected 0.6 percent from a month earlier but building approvals down 14.8 percent.

The Australian dollar plunged 1.3 percent after the announcement to 83.28 U.S. cents, while the ASX closed down 0.37 percent at 4,413.1.
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