Speech Summary An Accounting

The speech examines Australia's economic performance over the past decade, as compared with the global economy and Australia's earlier history. It notes that global growth was lower and much more variable in the past ten years than in the preceding decade. Although this meant that the international shocks hitting the Australian economy were larger than previously, Australia's economic outcomes were no more volatile than they had been previously. The inflation target was achieved, the average rate of unemployment was low and the variability of both real GDP and unemployment were if anything slightly lower than in the past. The speech attributes these outcomes to both the economy's improved capacity to adjust and to effective policy frameworks. In particular the speech concludes that the monetary policy framework has helped the Bank to deliver on its mandate through difficult times.

The speech goes on to note that, although the economy performed well overall, the average growth rate of real GDP has been lower in the past decade than the one before. Some slowing was inevitable given the earlier decade included a recovery from recession, but even allowing for that real growth has been lower. The speech then examines the reasons for this, both on the demand and supply sides of the economy.

Looking ahead, the speech notes the challenges for Australia in securing stronger future growth in the face of adverse demographics. It notes the need for fiscal consolidation but also the limitations faced by monetary policy in generating growth in demand when households already carry considerable debt. On the question of whether inflation targeting remains a suitable framework, the speech argues that the flexibility in Australia's arrangements allow policy makers to make sensible choices in managing deviations of inflation from target, even for reasonably lengthy periods.

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