- based economy and is dealing with high levels of corporate debt and the complications of opening its capital account. on the monetary front, interest rates in the united states were recently increased for the first time in nine years, while the bank of bis central bankers ’ speeches japan unexpectedly moved one of its key interest rates into negative territory. in doing so, it joined the european central bank, the swiss national bank, the swedish riksbank and the danish central bank with negative rates. and in a number of countries, there is an expectation that yet further monetary easing will take place. it remains to be seen what all this means for us. the recent international data have been mixed but, at this stage, do not suggest that momentum in the global economy has been lost. the monetary easing abroad is a complication for us, as it tends to put downward pressure on the currencies where the easing is taking place and thus upward pressure on the australian dollar. more positively, lower oil prices – which primarily reflect increased supply capacity – are mostly good for global growth : they lower the cost of production for almost every firm in the global economy and put more money in the hands of consumers. the lower oil prices do, however, create financial strains for some economies and for some companies. so there are lot of cross - currents here that we are watching very carefully at the moment. i now want to move to the three challenges that i spoke about in 2010. expanding the supply side – productivity the first of these was expanding the supply side of the economy – or lifting our productivity. six years ago, the focus was on ensuring that the economy had sufficient productive capacity to avoid overheating during a period of strong demand flowing from the resources boom. today, the focus is a little different. while we have done a pretty good job of adjusting to our changed circumstances, the not - so - good news is that growth in real income per capita in australia has stalled ( graph 5 ). indeed, average real income is no higher today than it was in 2008. this follows a 17 - year period in which growth averaged a remarkable 3. 1 per cent per year. during this earlier period, we benefited from : ( i ) strong productivity growth in the 1990s ; ( ii ) a very large rise in our terms of trade ; and ( iii ) favourable demographics, which helped increase the share of the population in paid employment. in all three of these areas, recent outcomes have not been as kind. it is more

than coincidental that the timing of this change in our fortunes broadly coincides with the timing of increasing pressure on the federal budget, an increase in the general sense of economic uncertainty, slower gains in some asset prices and slower growth in wages and profits. inevitably, when income growth is weak the effects are felt broadly through the community. looking ahead, we should be able to look forward to somewhat better outcomes than over the recent past. we could expect that the drag on our national income from falling commodity prices will eventually lessen. and if current trends in employment continue, we could look forward to some further increase in the share of the population in paid employment. both of these would be positive for real income growth. australia's fundamentals also remain sound. we have a tremendous base of natural resources, a talented, diverse and growing workforce, a stable political and legal system, a highly regarded university system, and we are well placed to benefit from the increasing demand for services from asia. but there is no escaping the fact that future growth in the average income of australians relies largely on our ability to lift our productivity. while the rebalancing and resilience of our economy is certainly something to welcome, the longer - term challenge is to lift our living standards through finding new things to do and better ways of doing what we currently do. the need for this is made more pressing by the fact that the growth momentum in the global economy is less than it once was. ultimately, productivity growth is heavily reliant on decisions made by businesses. but policy decisions can also make a difference. here, there is no shortage of ideas. they cover strengthened competition policy, better provision and pricing of transportation infrastructure, developing a strong innovation culture, creating strong incentives for entrepreneurship and hard work, and investing in high - quality education. the task we collectively face, then, is to bis central bankers ’ speeches identify the right specific policies in each of these areas and then find ways of implementing them. clearly, this is not an easy task, but neither is it an impossible one. housing i would now like to turn to the second issue – the balance in the housing market. again, when i spoke six years ago, the focus was on the pressures in the housing market arising from the rather unusual situation of having the growth rate of the population exceed that in the number of dwellings by a substantial margin ( graph 6 ). since then, population growth has slowed, and the rate of growth in the dwelling stock