IMF Chief says world is facing dangerous times
9News: At least one thing seems clear from the recent mayhem on global markets.
The Reserve Bank of Australia (RBA) won't be rushing to lift interest rates any time soon.
But there appears to be less confidence that the federal government will be able to deliver its much promised budget surplus in 2012/13.
Visiting World Bank president Robert Zoellick has warned politicians in Europe that it has gone beyond the point of just hoping that more liquidity and a growing global economy will help solve the eurozone's debt problems.
Mr Zoellick told reporters in Canberra the world is living in "difficult and dangerous times" and that decisions taken by European legislators will have a broader impact beyond the continent.
French President Nicolas Sarkozy and German Chancellor Angela Merkel are due to meet later on Tuesday to discuss the debt problems of the eurozone, although Berlin has already warned not to expect a breakthrough on financial reforms.
In a joint media press conference with Australian Treasurer Wayne Swan, Mr Zoellick said it was important for Europe, as well as the US, to understand others had a stake in "this game".
"My key message is that the process of providing liquidity, the process of kind of hoping that global growth will get everybody out of this, I think those prospects have run their course and that's what markets are communicating," Mr Zoellick said.
Mr Swan told parliament on its return from the winter recess that against this uncertain backdrop, Australia's fundamentals were strong and the government had a proven track record of dealing with global instability.
"I don't want to sugar coat the current situation. If the global economy were to weaken materially, that would obviously have an impact here," he said in a ministerial statement.
He also said the government had a "determination" to bring the budget back to surplus in 2012/13 as planned.
But opposition treasury spokesman Joe Hockey said the treasurer was clearly preparing the ground to break the promise he made in the May budget of delivering a surplus.
"Only last week the treasurer commented that this promise has now become an `objective', and today that promise is a `determination'," Mr Hockey told parliament in his reply.
An analysis by RBC Capital Markets believes economic growth will fall short of the Treasury's forecasts due to the recent deterioration in global market sentiment and local consumer confidence, a delayed recovery in Queensland's exports, and a softening jobs market.
"A return to surplus may not occur until 2014/15," the analysis' authors Su-Lin Ong and Michael Turner say, predicting a deficit closer to $30 billion for 2011/12 rather than $22.6 billion as forecast in the budget, and a $5 billion deficit in 2012/13 rather than a $3.5 billion surplus.
The Reserve Bank is also concerned that continued market turmoil could further weaken household and business confidence.
"This in turn could weaken the outlook for demand relative to the central forecast and, over the medium term, dampen the inflation outlook," the central bank said in the minutes of its August board meeting released on Tuesday.
Nomura Research chief economist Stephen Roberts said the latest minutes suggest the Reserve Bank is firmly on hold regarding rates, rather than for looking to raise them.
"We believe the outlook for cash rate moves will be determined by the interplay of global economic developments on the domestic economy and, importantly, the inflation outlook," he said.