Asian stocks dropped 3 to 4 percent after panic triggered the worst sell-off on Wall Street since the global financial crisis, sending investors slashing positions and scrambling for cash and government bonds.
Swan, looking to reassure the public and investors as the local share market dived to two-year lows, said Australia’s economy remained strong, having avoided recession during the last global crisis, and said the government had the capacity to act if conditions worsened.
“The most important thing is that Australia has strong economic fundamentals and one of the reasons we are so strong is that we avoided recession in the global financial crisis,” he told a news conference called to respond to the sell-off.
“And because we did that, we have the policy flexibility to deal with uncertainty in the international economy should measures be required,” Swan said.
Australia launched a massive stimulus program during the global financial crisis, equal to more than 7 percent of gross domestic product, the third largest among nations in the Organization for Economic Cooperation and Development, which also judged it to have been among the most effective.
Unlike Europe, the United States, and Japan, Australia also has the policy advantage of being able to slash interest rates, currently at 4.75 percent.
Australia’s central bank started tightening monetary policy in October 2009, but has not raised rates since November 2010, and has a history of quickly changing policy if it feels market turmoil threatens the economy .
Swan said growth remained strong in Australia and the Asia-Pacific economies, but warned the region was not immune to the debt crisis in Europe and the US.
“There is a shift in economic power from West to East. Growth in the Asia-Pacific remains strong,” he said.
“That is why our prospects are fundamentally different from what is going on in Europe and the US. We are not immune from these global events, but we are located in the right part of the world at the right time.”
Swan stressed that despite some recent softness in the Australian economy, it remained the envy of most other rich nations, given its position as a major exporter to the strong economies of Asia, and its low unemployment and debt.
He said a policy of returning to budget surplus in 2012-13 would enable it to better manage any economic crisis.
“One of the reasons why the government has been so intent on bringing our budget back to surplus by 2012-13 is that we realize that it is important that you have strong public financing,” he said.
Fears that Europe and the US debt crisis may spread, and slowing growth, led investors around the world to dump stocks and commodities on Thursday and to flee to the security of cash.
Worries that the euro-zone debt crisis was spiraling out of control sent blue-chip European stocks to levels not seen since markets recovered from the financial crisis in mid-2009.
And the sell-off continued in Asia on Friday.
Japan’s Nikkei share average fell 3.6 percent to the lowest since the week following the country’s massive earthquake and tsunami in March.
The benchmark MSCI index of Asia Pacific stocks outside Japan was down 1.8 percent, with the sharpest decline in the commodity-related sector. The index is on course for its biggest weekly drop since May 2010, when the European debt crisis was flaring up.
Australia’s Swan said he was confident Washington would be able to address its debt-crisis, but added that both the US and Europe had a long-period of adjustment ahead.
Australia’s central bank said on Friday it was concerned that sovereign debt problems in Europe and the US could play out in a “disorderly and disruptive manner.”
The Reserve Bank of Australia cut its growth forecast for 2011 to 3.25 percent, compared with an earlier estimate of 4.25 percent. But it kept its upbeat growth forecast of 3.75 percent for 2012 and 2013.
It said conditions in global credit markets were generally favorable and credit markets in Australia continued to be relatively unaffected by the global uncertainty, noting local banks were not having problems raising funds offshore.
