By Zeba Fatima

Europe is likely to muddle through 2012, providing a boost for retailers and adding to solid economic growth in Australia as it gathers steam after last year’s natural disasters.

"If the world muddles through, then Australia will grow faster than you think it will: surging resource construction will underwrite a lot of growth, as will a further rebound in coal output from the early 2011 floods,” Deloitte Access Economics said in its Business Outlook report.

That will combine with better news in retail and home building due to Reserve Bank interest rate cuts, to keep growth relatively rapid in 2012, though it may lose some steam in 2013 as the rebound in coal output runs its course.

"Moreover, that acceleration in growth would occur despite well-publicised negatives: the hit to consumer and business confidence from the horror headlines in Europe, the winding back of Federal Government stimulus, and continuing pain for many firms from the $AUD’s stellar strength.”

But the December 2011 report warns that if the European crisis worsens, Australia will feel the impact through a rise in unemployment, a huge deficit, and necessitating another stimulus package.

“Resource sector construction would still surge, leaving us among the fastest-growing economies in the world," the report read.

“Yet that would be little consolation: growth would still slow and unemployment rise as (1) confidence saps spending by firms and families here at home, (2) the weak world economy cuts commodity prices (and so national income), and (3) money becomes ‘too tight to mention’, as European bank failures would mean a credit crunch even if the RBA cut hard and fast.”

Weak job outlook for 2012

The report also found the job outlook is weak in the short term, with employers reluctant to take on additional workers expected to lift the unemployment rate from the current level of 5.2%.

Sector by sector, Deloitte Access Economics found the high Australian dollar and interest rates, the poor pace of home building, and changing technologies and tastes will continue to pressure manufacturers, tourism operators, education providers, builders and printers and retailers.

“Despite the well-publicised news of its death, Australia’s economy continues to recover strongly from the global crisis of 2008-09 and from the floods and cyclones of early 2011,” the report said.

“The Australian economy’s growth through 2011 a year of slings and arrows, floods and cyclones, and fear of financial crises has been little short of remarkable.”

The report adds that consumer spending on things that are not sold in shopping malls, such as cars, electricity and water, rents and even restaurant meals has been growing fast, it says, leaving the overall pace of spending by consumers running at or even above trend.