According to the Deloitte Access Economics Business Outlook for the December 2011 quarter, it is still marginally more likely that the Eurozone will muddle through the crisis, with sticky tape holding the euro together and funding to banks from the European Central Bank helping to keep the market wolf from the sovereign debt door.

Chris Richardson, Deloitte Access Economics Partner, said that, against this backdrop, Australia also faced two different paths - and the business plans of Australian companies needed to allow for both.

"If the world muddles through this crisis, then Australia will grow faster than many think it will," Mr Richardson said.

"Surging resource construction will underwrite a lot of growth, as will a further rebound in coal output.

"Thanks to Reserve Bank rate cuts, this will combine with better news in retail and home building 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, this 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 $A's stellar strength.

"If, however, Europe ‘blows', then Australia's outlook tanks. Resource sector construction would still surge, leaving us among the fastest growing economies in the world, but that would be little consolation.

Australian economic growth would still slow and unemployment rise as:

1.Confidence sapped spending by Australian firms and families;
2.The weak world economy reduced commodity prices (and so national income); and
3.Money became ‘too tight to mention', as European bank failures would mean a credit crunch even if the Reserve Bank cut interest rates hard and fast.

Mr Richardson said that key industries remained under pressure from the strong $A and from interest rates that remain well above those in the rest of the rich world.

"This mix of exchange and interest rate strength poses problems for manufacturers in, for example, the food, clothes, wood and paper, plastics and chemicals sectors, as well as for tourism operators and education providers," he said.

"The deadly duo of strong exchange and interest rates is also plaguing farmers, who may have additional issues to face if the rainfall of the past two seasons drops to more normal levels in 2012-13, and if a return to better seasons among some key competitors take some strength from under rural commodity prices on world markets.

"Other sectors face different demons. Australian industries such as retailers of household goods and makers of building products are seeing their prospects hurt by the poor pace of home building.

"Others - printing and recording, information services, as well as bricks-and-mortar retailers as they battle the surge to online sales - are hit by changing technologies and tastes.

"A new addition to the watch list - business services - comes as the Federal Government cut spending to hit its treasured 2012-13 Budget surplus, and as State Treasurers moot the need for cutbacks to offset revenue weakness so that they can keep their AAA credit ratings.

Mr Richardson said it may well be the finance sector that has the most to worry about in 2012.

"It has finally sunk in that weak credit growth may be the ‘new normal'," he said.

"With the Eurozone crisis also haunting the horizon and rumours of Japanese competition in mortgage markets, 2012 may be a tough year for the finance sector.

"Yet growth in the wider Australian economy as a whole looks set to be solid, with the sectoral challenges above a very stark contrast to the great growth being seen in engineering construction and mining. These two sectors are simply going gangbusters."

www.deloitte.com.au