glenn stevens : overview of the australian economy opening statement by mr glenn stevens, governor of the reserve bank of australia, to the house of representatives standing committee on economics, melbourne, 26 august 2011. * * * quite a bit has happened in both the global and local economies since we last met with the committee. in february, we had seen the queensland floods, and cyclone yasi had just occurred. tropical storms had disrupted iron ore shipments out of western australia. there was understandably a focus on what the economic effects of those events would be. it was thought likely that economic activity as measured would be materially weaker in the march quarter than had been earlier expected, but that there would be a recovery in the middle of the year. it was thought that the rebuilding efforts in queensland would exert a mild expansionary effect on demand beginning in the second half of the year. gdp was indeed weak in the march quarter, with the fall in coal and iron ore production more than offsetting a modest increase in output in the rest of the economy. since then, the rebound in production of iron ore has been more or less as expected and the disruption to general economic activity in queensland associated with floods has abated. but in the case of coal, largely for environmental reasons, the process of dewatering pits is taking longer than initially expected. the recovery of coal production in queensland is probably about two - thirds complete at the present time. it may be early next year before production has fully recovered. this has had a material effect on the forecasts for gdp. it was also understood in february that there would be large effects on the consumer price index because of the loss of key crops. these were expected to be temporary and, indeed, prices for the relevant items are now falling back as crops begin to recover. the bank has been clear that such fluctuations have had no implications for monetary policy. we didn ’ t know in february that a serious japanese earthquake would have a significant effect on global manufacturing production and sales, including in australia ’ s motor vehicle sector. this explains part of the apparent slowing in global growth in the june quarter. part of the slowing in growth in major countries is also likely to have been caused by the increase in energy prices in the early part of the year, which now appears gradually to be reversing. another factor at work, though, has been the concerns about public debt in major countries. these were apparent six months ago, but have escalated markedly in the intervening period.

system ; • identify the potential challenges facing the system ; and • outline institutional or regulatory changes that might improve the operation of the system. that ’ s a fairly hefty agenda, as you can see. in looking at the papers, where i think they are the most useful is in providing a clear, wellarticulated framework to think about these issues. such a framework has often been lacking in the debate that has gone on at various times over the past few years. < http : / / www. fundingaustraliasfuture. com > see debelle g ( 2012 ), “ credo et fido : credit and trust ”, deakin university's 2012 richard searby oration, melbourne, 25 september. bis central bankers ’ speeches take one current example, which is on the g20 agenda, namely the “ lack of infrastructure funding ”. to answer this question appropriately, we need to know whether it is a problem for financing different stages of a project, what type of risk is holding any financing back, what type of institutions and instruments might help any shortfall, etc. but there needs to be a coherent framework in mind to be able to do this, and to know what are the right questions to be posing. the papers commissioned for stage 1 of the project are designed to set the scene. i will give a brief summary of each of the main points i take away from the three papers. kevin davis ’ paper, “ funding australia ’ s future : from where do we begin? ” provides an insightful overview on a number of topics. let me give a brief disclaimer here. kevin was my first macroeconomics lecturer at university back in the day, so i am very much in his debt for all he taught me about macro and monetary economics. • the first main point in kevin ’ s paper is the identification of the ways in which the australian financial system differs to other developed economies. • second, it discusses the main consequences of the financial crisis for financial flows in australia as well as some of the more fundamental forces influencing the longerterm evolution of the sector. • lastly, it identifies some of the implications of these influences. for example, it links changes in the competitive advantage of banks in raising deposits to changes in the nature of the loan origination process, the length of the financial intermediation “ chain ”, and the overall cost of intermediation. daniel mulino ’ s paper, “ improving australia ’ s