Australia to defy Europe's financial chaos

Europe's debt crisis has thrown a spanner in the works of a global economic recovery, but an independent forecaster on Thursday predicted Australia should still strengthen this year.

Access Economics said Australia sells more to emerging economies than to the "rich world", so 2010 should see the broader economy rebound further.

This included the retail sector which, while having been restrained by rising interest rates, should be supported by very strong jobs growth.

Releasing its quarterly Access Retail Forecasts on Thursday, director David Rumbens said rising house prices and retail spending normally go hand-in-hand because of the increased wealth effect.

However, an inverse relationship has developed between the two in recent months as rising home loan costs have left less room in the household budget for shopping.

"Retail sales growth over the nine months to March 2010 was just 0.3 percent, a less than satisfactory result," Rumbens said in his statement. While rising interest rates has been hurting retailing, it should also take the "zing" out of house price growth, Rumbens said.

The strength of house prices has been a key reason for the rapid rise in rates, which have been lifted six times since last October.

In leaving the cash rate unchanged last week, the Reserve Bank of Australia said lending rates were now around 'normal', suggesting there may now be a pause in hiking rates.

"Escalating fears over Europe's debt levels will cement that in, " Rumbens said.

"That may allow underlying income gains from jobs growth to play a stronger role in supporting a lift in retail sales through the course of 2010 and 2011."

He said jobs growth had been impressive with more than 250,000 positions created between August 2009 and April 2010, an annualized growth rate of 3.5 percent.

More than 70 percent of these jobs were full-time positions.

Courtesy Xinhua