The speech looks at a number of important developments in the global and domestic economies over the past two years. It starts by noting that, economically, not much has changed for Australia in the period, disappointing hopes that growth would be picking up speed by now. It goes on to consider the experience elsewhere, comparing economic growth in Australia's main trading partners, the euro area, Japan, China and the US. The speech highlights the issues faced by Chinese policymakers in managing two major transitions in their economy at the same time. It opines that the way this process plays out continues to be a source of uncertainty for Australia. Turning to the outlook for the US economy, it says that there is more optimism now, which is significant for business confidence around the world and also increases the likelihood that monetary policy settings in the US will start to be normalised.

The speech then moves to look in more detail at the path the Australian economy has taken over the past few years. It looks particularly at the elements that have evolved differently to what was expected two years ago, such as the terms of trade, the exchange rate, growth, labour markets, inflation and consequentially monetary policy settings. It suggests that, with households more highly leveraged than they once were and national income growth reduced by the falling terms of trade, household consumption can only be expected to record moderate growth. The impact of the ongoing fiscal consolidations is also noted. In this light, consideration is then given to potential sources of ‘upside’ for growth in the coming years.

The possibility that a lower exchange rate could eventuate at some point and support growth and prices is considered. The speech notes that the Reserve Bank remains open to further easing of its policy settings if that would, on balance, be beneficial for sustainable growth. However, it notes that monetary policy alone cannot deliver everything that is needed for better growth. It emphasises the importance for successful economic outcomes of other forms of policy ‘coalescing around the narrative for growth’.

The speech considers the potential economic benefits that might flow from increased infrastructure spending. It suggests that it would be confidence enhancing for a broad range of sectors of the economy for there to be a pipeline of infrastructure projects; projects that would then unleash potential benefits for the wider population. The speech notes that doing more investment in physical assets needs to be accompanied by investments in skills, education and technology, so as to create a positive dynamic of confidence, innovation and investment.

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