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Although there has been a significant improvement in financial market conditions, Reserve Bank of Australia Assistant Governor Guy Debelle said downside risks remained in the North Atlantic markets of the U.S., Europe and the U.K.
"We are now into a phase where the weakness in the global macroeconomy is feeding back into the financial sector," Debelle said at a luncheon event in Sydney on Tuesday.
"A significant risk, in my assessment, is that we are still yet to see the full impact of the weakness in the North Atlantic economies on the loans on the books of financial institutions," he said.
"While most of the recent jitters have been associated with sovereign countries, I think risks stemming from the financial sector are still there."
Asia, however, did not share these worries, Debelle said, with the risks facing the region more on the upside.
"In Asia, bank balance sheets have remained in sound condition throughout and hence are no impediment to credit provision," he said. "Indeed, there is a marked contrast between the balance and nature of the risks in Asia and the North Atlantic."
"The interplay between the contrasting fortunes of these two parts of the world is likely to be the critical factor in determining the evolution of the global economy, and Australia is now more tied to one than the other," he said.
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