Julia Gillard talks positive amid global market rout

PRIME MINISTER Julia Gillard has talked up Australia’s strong economic fundamentals after concerns over Europe caused a rout in global sharemarkets and sent the Australian dollar to a six-month low.

Some $35 billion was wiped off local shares on Friday when the market fell almost three per cent.

Investors were rattled when credit agency Fitch Ratings cut Greece’s sovereign debt rating to a low-ranking CCC and warned there was a “heightened risk” the country would be forced out of security of the euro zone.

Despite global market volatility, the prime minister and Treasurer Wayne Swan said Australians could be confident.

Ms Gillard attended a ground-breaking ceremony in Darwin on Friday for the start of a $34 billion LNG project by Japan’s Inpex, saying it was a “fantastic” opportunity for the Northern Territory and part of the resources boom that was buffering the domestic economy.

“We can be confident about the Australian economy because there are so many investments like this one in the pipeline – more than $450 billion of investments,” she told reporters.

She said Australia came out of the global financial crisis and continued to grow, amid low unemployment and low inflation.

But the prime minister also understood that many Australians would be concerned by the news from Greece and conceded there were also “stresses and strains” domestically from a high dollar that is having an impact on manufacturing and tourism.

“But even in manufacturing and tourism we are seeing companies compete and hold their heads up in the world, and continue to make good profits an keep people in jobs,” she said.

There may also be some good news on lending rates next month, with expectations rising that the Reserve Bank of Australia will make another large cut to the cash rate when its board meets on 5 June.

Local money markets saw unusually big price moves on Friday which indicate there’s an 80 per cent chance of another 50 basis point reduction.

“Amid a rapidly deteriorating global backdrop, the risk to our base case for another 50 basis point of easing this year – August and in the fourth quarter – is clear,” analysts at RBC Capital Markets said in a report.

“Sooner rather than later, and more rather than less.”

Treasurer Wayne Swan on Friday called on European policymakers to deal with the sovereign debt crisis, get their budgets back on a sustainable footing and restore growth.

“However Australians should be very assured that the prospects for our region remain healthy, and our own economic fundamentals are among the strongest in the world,” he said.

Global markets have been under a cloud for much of the week after Greece failed to form a government after its 6  May elections.

There are fears new elections planned for 17 June may see greater support for small anti-austerity parties, increasing the risk of the European Union and the International Monetary Fund cutting off a flow of bailout loans. – AAP