Rio Tinto: world economy needs 'hard work'

The chief of mining giant Rio Tinto Sunday said the global economy needed "several years of progressive hard work" but warned against a negative over-reaction given the strength of growth in China. Rio Thursday booked record underlying first-half earnings of US$7.8 billion due to strong Asian demand for its commodities, and chief executive Tom Albanese said business in China continued to be strong. But the company was watchful given the volatile conditions, Albanese said in an interview with Australian television recorded prior to the news that Standard & Poor's had downgraded the US credit rating but broadcast Sunday. "There is significant debt concerns in Europe and in the US that do need to be managed," Albanese told the ABC. "They're not going to fix overnight and hopefully it's just going to take several years of progressive hard work and hopefully slow economic growth to get through this quite difficult stage that, again, the markets have been in for quite a while. "But it's not necessarily an environment for over-reaction and certainly I would hope that people wouldn't be over-reacting." In reporting half-year earnings growth of 35 percent on-year, the Anglo-Australian miner had last week warned of significant downside risks to growth, with credit tightening in Asia and debt jitters in the US and Europe. But Albanese said he expected China to provide a bright spot. "We still would continue to believe that China will be growing this year at more than nine percent -- probably closer to nine-and-a-half percent -- and that will leave global GDP growth in excess of three to three-and-a-half percent," he said. "Certainly everything I've seen and all the discussions I've had would indicate to me that nine-plus-percent GDP growth should be expected this year -- and that it will moderate, but it will still be well above eight percent next year." Albanese said despite high commodity prices, Rio was facing rising costs and would continue to do so in coming years. "We've also seen increased labour costs, increased input costs, particularly in mining hotspots -- so Queensland, West Australia, parts of South America, parts of Africa, are seeing higher than normal inflation," he said. "It has been offset to some extent by more normalised conditions in, say, the US, Canada etcetera, but I think this is a challenge we're going to face not just this year but in the coming years." He said these costs would impact not only operations, but also the pace and the expense of capital projects.