By Rachel Pannett
SYDNEY--European leaders must still act swiftly to avoid a sovereign debt crisis spreading even after Greek elections delivered a pro-austerity result, said a board member of the Reserve Bank of Australia, or RBA, Monday.
"People need confidence that the Europeans have really got a plan to deal with these issues and we start to see some clarity and people can start to make investments and employ people," Heather Ridout, a member of the RBA's policy setting board said in an interview.
The political uncertainty in Greece, as well as a banking crisis in Spain, threaten to spill over into a global slowdown that affects not just Europe but also the U.S. and China, Australia's biggest trade partner.
"There's a long way to go before businesses will have confidence that this is anywhere near a resolution," Ms. Ridout said. "What's going on in Europe, as everybody understands, is not just about Europe. It's almost as much about the rest of the world as it is about them."
Leaders from the world's biggest economies, the Group of 20, are meeting in Mexico to push for a resolution to Europe's political and economic crisis with the global economy in its most fragile state since the depths of the financial crisis in 2008.
In Australia, the central bank has cut interest rates by 125 basis points since November to 3.5% in a bid to revive activity outside the booming mining sector and insulate the economy from any global shocks emanating from Europe. Economists say they could slash more if needed.
Ms. Ridout said Australia--which grew faster than any developed economy in the first quarter--should be "very positive about where we sit in the global scheme of things."
But Ms. Ridout, typically seen as an advocate for lower interest rates, having for years campaigned for the interests of manufacturers, construction firms, auto makers and others as head of the Australian Industry Group before joining the central bank board earlier this year, cautioned against being too upbeat.
"I don't think we should talk up the economy. I think we should be realistic about the economy," she said.
The multi-speed nature of the economy means sectors outside of the booming mining sector are "experiencing a lot of pressure", she said, as they attempt to adapt to a higher Australian dollar exchange rate.
The local currency was trading above parity with the U.S. dollar Monday following the Greek election. At 0345 GMT the Australian dollar was at US$1.0113.
Business and consumer confidence is in the doldrums even as official data this month showed Australia grew at an annualized pace of 4.3% in the first quarter and employment growth here has been solid since the start if the year.
"There are undoubtedly a lot of companies, a lot of industries going through a lot of structural change. It is understandable that a lot of people are unhappy. But at the same time you look at the macro numbers and they certainly tell a reasonably strong story about Australia," Ms. Ridout said.
Of the 87,000 new jobs added between February and May, 62% were in the mining and agriculture sectors, according to an analysis of official data by TD Securities, underscoring the uneven growth profile of the economy. Meanwhile, in the year to February, traditional industries like manufacturing, transport and retail experienced double-digit declines in jobs numbers.
-Write to Rachel Pannett at email@example.com