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June 9, 2010    

euro zone debt crisis could hit global economy

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by Kay Murchie
euro zone debt crisis could hit global economy

There are fears that the debt crisis in the euro zone could hit the global economy but Australia believes its economy will be unaffected.

According to the Reserve Bank of Australia (RBA) governor, Glenn Stevens, the country’s strong trade connections with East Asia means it will be relatively unaffected by the events in the euro zone.

The Australian economy is one of the few developed economies not to have fallen into recession like its counterparts throughout the world.

It has benefited from an increase in commodity prices, while exports have received a boost due to demand from China for its iron ore and other raw materials.

While Mr Stevens said he is cautious about the euro zone, its little exposure to struggling nations means it is unlikely to suffer.

He comments: “The [European] episode is not yet over, and the issues will continue to need careful handling by all concerned and close monitoring by the rest of us.

“It cannot be denied that the potential for further financial turmoil exists,” he added.

Meanwhile, the International Monetary Fund (IMF) has long been of the belief that Asia will lead the way in the global recovery but there are now fears that the euro zone debt crisis could disrupt global trade, affecting demand for Asian exports and sending “hot money” into the region.

This was the warning from IMF Deputy Managing Director, Naoyuki Shinohara, while speaking at a lecture to financial professionals in Singapore.

He said: “The key will be for policymakers to keep an eye on the bigger picture and be ready to act swiftly as developments unfold.

“With Asia’s economic muscle growing, the policy choices made in this region will have an important impact on the global economy,” he said.

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