Australian PM sees vicious cycle of declining growth

Lima: The world faces a "vicious cycle" of falling economic growth unless urgent measures are taken by global leaders, Australian Prime Minister Kevin Rudd told executives from Asia and the Americas on Friday.

Rudd led the left-leaning Labour Party to power last November, but one year into his three-year term, the global financial crisis has hit Australia hard.

Confidence falls

"As confidence across the world falls, it begins a vicious cycle that leads to further caution on the part of households, leading to further falls in consumer spending, leading to further falls in business investment, leading to lower growth," he said at a summit of the Asia-Pacific Economic Cooperation forum in Peru.

"As private demand falls, governments must step in to take up the slack. This will require further monetary action and it will require fiscal action," Rudd said.

The Australian government is forecasting slower growth and rising unemployment, and is spending A$10.4 billion ($6.6 billion) on a stimulus package to ensure the economy keeps growing. It has promised more stimulus if needed.

Commodity prices and booming Chinese demand for Australian resources have also eased, while Japan, Australia's second-largest export market and a major customer for coal and iron ore, has slipped into recession.

The government has forecast growth to slow to two per cent in 2008-09 from 2.75 per cent, with unemployment rising to 5.75 per cent by mid 2010 from 30-year lows of under four per cent earlier in the year.

"In face of these challenges, the Australian economy remains strong. Our financial sector is robust," Rudd said.