Australia to stay resilient to global shocks -c.bank

SYDNEY, July 24 (Reuters) - Australia's economy is undergoing changes that will make it more resilient to future global shocks, including a slowdown in China or an escalation in the European financial crisis, a top central banker said on Tuesday.

Reserve Bank of Australia (RBA) Governor Glenn Stevens cited higher household savings, a more sober attitude towards debt, a shift by banks to domestic sources of funding and a period of stable home prices as reasons for optimism on the economy.

Even if China's economy slumped or Europe's debt woes triggered another global financial spasm, Australia had the financial resilience and policy tools to respond.

Key here would be a flexible exchange rate, with the Australian dollar likely to fall and provide stimulus to the domestic economy, much as it did in 2008, said Stevens.

Australia also had room to move on interest rates.

"A serious deterioration in international economic conditions would still see Australia with scope to use macroeconomic policy, if needed, as long as inflation did not become a concern," he said.

The central bank cut rates in both May and June as the global outlook dimmed, but at 3.5 percent rates are still well above those in most developed nations.

Stevens also felt that China, Australia's single biggest export market, had room for stimulus if needed.

"Even if one is concerned about the extent of problems that may lurk beneath the surface in China - say in the financial sector - it is not clear why we should assume that the capacity of the Chinese authorities to respond to them is seriously impaired," he argued.

Indeed, he played down fears about a hard landing in China, saying recent data was "quite consistent" with growth in industrial output of around 10 percent, and economic growth in the 7 to 8 percent range.

"So far, then, the 'China story' seems to be roughly on course," said Stevens.

Stevens also took issue with talk that Australia had a housing bubble which was about to collapse. It was not at all clear that Australian housing was overpriced internationally, he argued, while many home owners were ahead on their mortgage payments and arrears were very low.

"The ingredients we would look for as signalling an imminent crash seem, if anything, less in evidence now than five years ago," he said.

Neither was he that worried about the ability of Australian banks to fund themselves or of the country to fund its current account deficit. The banks had already cut back on offshore funding to greatly increase their reliance on domestic deposits.

And the Australian government was currently able to borrow at the lowest rates on record.

"Markets do not, then, seem to be signalling serious concerns about Australia's solvency or sustainability," he said. (Reporting by Wayne Cole; Editing by Lincoln Feast)