Description of Graphs for Speech by Glenn Stevens, Deputy Governor

Graph 1: United States - Profit After Tax

The graph shows US profits after tax, with depreciation and inventory valuation adjustments, as a percentage of nominal Gross Domestic Product (GDP) from 1970 to 2002.

The graph shows that although profits tend to fall sharply during recessions in the US the most recent recession is an exception. Profits as a share of GDP peaked in 1997 falling from just under 7 per cent of GDP to around 4 per cent of GDP (a new low in the post-1970 period) before the recession started in 2001. Profits as a percentage of GDP have since recovered a little, though they remain low.

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Graph 2: World GDP Growth

The graph shows annual world GDP growth from 1970 to 2001, and Consensus forecasts for 2002 and 2003.

Over the past 30 years, world growth has averaged 3½ per cent. In 2001, the world economy posted well-below average growth and is forecast by Consensus to do so again in 2002, before picking up to around average growth in 2003.

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Graph 3: United States - Monetary and Fiscal Policy

The top panel of the graph shows the federal funds target rate from 1970 to 2003. The bottom panel shows the Federal budget balance as a percentage of nominal GDP with a forecast for the budget deficit in 2003 sourced from the Office of Management and Budget.

The graph highlights the extent of the monetary and fiscal stimulus in the US during the past two years. Monetary policy has been eased considerably, with the federal funds rate having been reduced from 6.5 per cent in 2000 to the current 40-year low of 1.25 per cent. At the same time, the fiscal balance has quickly swung from a surplus of around 2.5 per cent of GDP in 2000 to a deficit of around 1.5 per cent of GDP in 2002. A further widening in the fiscal deficit is expected in 2003.

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Graph 4: US TWI

The graph shows the US dollar Trade Weighted Index (TWI) over the period 1980 to 2003. This index measures movements in the US dollar against the other major global currencies, which include the Canadian dollar, euro, Japanese yen, British pound, Swiss franc, Australian dollar and Swedish krona.

The TWI has traded a wide range over this period. Over the first half of the 1980s, it strengthened by around 52 per cent to reach an all time high of 144 in 1985. The TWI then weakened sharply in the second half of the 1980s, falling to a level in 1988 that was 11 per cent below that seen in 1980. The TWI fell slowly between 1988 and 1995, losing another 10 per cent of its value, to reach an all time low in 1995, before appreciating by 43 per cent between 1995 and early 2002 to a 17 year high. Since early 2002 the US TWI has fallen by around 12 per cent, unwinding 42 per cent of the appreciation seen between 1995 and early 2002.

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Graph 5: Demand and Output

The top panel of the graph shows the year-ended percentage change in real Australian GDP and domestic final demand, while the bottom panel shows the contribution of net exports to year-ended growth in real GDP.

The graph illustrates the strength of the domestic economy, with domestic demand growing by just over 6 per cent through the year to the September quarter. GDP, on the other hand, grew by a more modest 3.7 per cent over the same period, as the combination of strong domestic demand and continued weakness in the global economy led to net exports subtracting 3.1 percentage points from growth over the year.

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Graph 6: Business Investment

This graph shows nominal business investment, as measured by the ABS Capital Expenditure survey, as a percentage of GDP from 1990 to 2002. Year-average forecasts for 2002/03 are based on estimates published in the Capital Expenditure survey, adjusted by 5-year average realisation ratios.

Business investment weakened considerably as a percentage of GDP in the period 1998 to 2001, reaching a similar level to that experienced during the early 1990s recession. However, the past year or so has seen a modest recovery in business investment, with the latest estimates of firms investment plans for 2002/03 suggesting that this recovery will continue in the near term.

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