Costello Says Sub-Prime Woes Have Way To Go

Source : The Business Times, September 27, 2007

MELBOURNE - Australian Treasurer Peter Costello said on Thursday that he saw further fallout from problems in the US sub-prime mortgage sector and some spillover into the wider US economy.

But he also told reporters that even if the US economy slipped into recession, the Australian economy could remain strong with careful management.

'I think the fallout from the US sub-prime market still has a considerable way to go,' Mr Costello said, speaking after a book launch.

'It is not yet entirely clear who is holding all the risk from these defaults. There will be different financial institutions around the world which will identify losses.'

Recent data has pointed to slower growth in the US economy, although analysts are divided on whether it might deteriorate into a more serious downturn. Figures have shown that the housing industry remains under pressure.

Any slowing in the world's largest economy could hurt Australian exporters by dampening demand for their products.

Mr Costello also said that real wage growth in Australia is solid but sustainable.

Australia's central bank has been closely watching wages, looking for signs that unemployment at a 32-year low would mean higher wages and increased inflation.

However, recent indicators have shown wage rises have remained subdued, with analysts citing a rising labour force due to immigration as a possible reason. -- REUTERS