Australia 'can handle' financial shocks

"My assessment is the Australian economy remains very strong, and we should be reassured about that," Mr Howard told journalists in Canberra.

"Our financial institutions are very stable and the underpinnings are such that we are better able to handle changes and shocks of this kind than we would otherwise be, if for example, if we weren't running such a strong fiscal policy and if we didn't have such strong financial institutions."

Mr Howard said Australia does not have anything like the same number of sub-prime or low-doc loans as the US does, although the number has grown.

"Yes there is an adjustment going on and there is no way we can escape some impact, we have seen it already, world financial markets are inter-connected," he said.

"I don't think we should overreact, but we should understand that we are in a globalised economy and there are going to be cases where changes in other parts of the world, particularly in the United States, are transmitted to the Australian economy."