Analysts warn of “Eurogeddon” Down Under, despite Teflon-coated Australian economy

They're calling it Eurogeddon. A report out this week says Europe is key Australia's economic fortunes in 2012.

Probably not the first instance in recent times that country has feared the flow-on affect from the European debt crisis, right? 

Well, yes, but it may come as a rude shock to Australians, who have been taking their economic fortunes for granted for a quite some time now.

A recent analysis of said fortunes by respected Sydney Morning Herald commentator Peter Hartcher began with the simple premise that:

Australians live in the richest country on Earth … however you measure it.

Hartcher's piece claims that Australia has not only "proved to be the rich country most immune to the economic ailments of the United States," but, "indeed, everywhere else."

Australia sailed through the Asian economic crisis of 1997-98, prospered through the US stockmarket bust and recession of 2001 and continued to grow through the savage global financial crisis of 2008-09.

Australia's unemployment rate of 5 percent going into 2011 was half that of Europe or America, Hartcher wrote, before citing a headline in France's Le Monde newspaper, ''Australia astonishes,'' accompanied by a chart showing "Australia's exceptionally resilient rate of growth."

Now, the independent economic forecaster Deloitte Access Economics is warning that Australians must get used to thinking of their economic fortunes in terms of Europe's. 

Europe, Deloitte director Chris Richardson told the Australian Associated Press, "will drive mortgage rates, it will drive unemployment, the chances of you retaining your job and the chance of getting a new one" in Australia.

"It will drive sharemarkets, it will drive company profits. Of course, for Canberra, it will drive the chance or otherwise of getting a surplus in 2012/13."

The consultancy's latest business outlook, titled "Eurogeddon?", released on Monday, indicates that Australia faces two main scenarios for 2012.

"[Europe's] mismanaged crisis means the euro could falter and that banks could go bust, sending shockwaves around the world," it said.

"Yet it is still marginally more likely that the euro zone muddles through this crisis, with sticky tape holding the euro together and ECB [European Central Bank] funding to banks helping to keep the market wolf from the sovereign debt door."

If a European disaster was averted, Richardson told AAP, growth could be stronger than expected. A surge in resource sector construction could also underpin the Australian economy.

However, if Europe tanks, so too does the outlook for Australia.

"You will see unemployment go up, you would see interest rates go down, the dollar go down and company profits take a bath," Richardson said. "Of course, the surplus would be cactus."

Any economic collapse in Europe would likely also take the shine off Australia's low unemployment rate, measured at 5.2 percent in December, Richardson told The Australian newspaper.

"Employers may be more likely to offer existing workers extra hours rather than take on new employees. That could see unemployment edge up, although not much, as population growth has fallen notably. But if Europe does drop its load, then unemployment would jump towards 6 percent."

Prime Minister Julia Gillard, perhaps in a preemptory confidence-building maneuver, wrote in an editorial published Monday that Australia "can't be completely immune from the impact of the massive slowdown in those economies."

However, Gillard wrote in The Australian, "our economy will remain the envy of the world," with relatively low debt and unemployment and room for the Reserve Bank to cut interest rates.

"With the resource boom driving a high Australian dollar, our economy is transforming and pressure is being placed on businesses in manufacturing and tourism. We understand this time of economic change and the need to work with these industries," Gillard wrote.

Last week, the paper reported that:

Gillard repeated the government's determination to deliver a surplus in 2012-13 despite the economic storm clouds, indicating the Reserve Bank could cut interest rates if it felt it was appropriate.

Deloitte Access Economics' Richardson said the fate of Europe would be a "genuinely close call" but he believed authorities would stave off a crisis.

Besides, according to the Deloitte report, growth in the wider Australian economy as a whole appeared solid, due to activity in the engineering construction and mining sectors.

"Those two sectors are simply going gangbusters," it said.