Economic Performance and Issues in 2002

Thank you to the Australian Industry Group for an invitation to return to your annual conference. It is a pleasure to be here. Since this is my third appearance here, I thought it might be useful to give a brief history of the past couple of years as a prelude to making some observations about the current state of things, and about some of the issues for the year ahead. As we all know, the year 2000 was a strong year for global growth. In that year, world GDP rose by almost 5 per cent, and growth in the major countries (the G7) ran at about 3 1 /2 per cent. This was led by the US, which enjoyed a very strong performance through the second half of the 1990s, though the growth was not confined to the US, and a number of countries did quite well, including, in particular, Australia. The Asian region generally recovered from the crisis of 1997 and 1998, with several countries riding the global boom in spending on information technology. Japan was perhaps the most conspicuous exception, with a very weak performance overall through most of the 1990s – which held down the G7 aggregate mentioned above quite noticeably. But towards the end of 2000, it began to become clear that a slowing in the US economy, which had been talked about, but not seen, for several years, was finally beginning to occur. At that time, expectations were for lower growth in the major economies in 2001 than in the preceding year, but still for growth at about average rates. Then, in the early months of 2001, assessments of the health of the US economy, and by extension much of the rest of the world, were revised dramatically. For those who closely watch the US economy, the bell was rung in early January last year, with a reduction in interest rates by the Federal Reserve, undertaken in between their normally scheduled meetings. That was to be followed by a sequence of policy changes which were aggressive compared with the experience of the preceding decade. When we met here about a year ago, then, we were in a period in which expectations were moving quickly, both about the international scene and about the Australian economy. Perceptions about the world economy were to worsen noticeably in the subsequent months. Those about the Australian economy worsened as well, …