. some that experienced considerable turbulence in the middle of last year, when tapering was first mooted, have seen less of that recently. this owes something at least to policy responses in those countries in the intervening period. among those countries that have been under most pressure of late, genuine domestic sources of risk can be observed in most instances. in several cases the market pressure has resulted in policy responses, which were perhaps needed anyway. in general then, tapering is proceeding, so far, about as well as can be expected. in the meantime, forecasts for the global economy haven ’ t changed much in recent months. if anything they have inched higher. they suggest that 2014 growth will be higher than in 2013, and at about average pace. more of the growth is coming from the advanced countries, and proportionately not quite so much from the emerging ones. that, too, is bis central bankers ’ speeches probably a welcome re - balancing in some respects after the weakness of the advanced countries in recent years. australia ’ s terms of trade have been little changed over the past year, though we still assume they will decline further in the future. turning to the australian economy, for some time our view has been that growth has been running below its trend pace. the national accounts released a couple of days ago don ’ t significantly change that assessment. for the year to the december quarter of 2013, real gdp rose by about 2¾ per cent. this is roughly in line with the forecasts we have had for a while. the drivers of growth are shifting. as we have been saying for some time now, and as confirmed in the recent survey of capital expenditure intentions by firms, the very high level of investment spending by mining companies has turned down, and the decline will accelerate over the coming year. other areas of demand will provide at least some offset. export volumes for resources are growing strongly, as the capacity that has been put in place by the high levels of investment comes on line. for example, iron ore shipments have risen by about 85 per cent from their levels of five years ago, to around 1. 5 million tonnes per day. they will rise further over the coming year or two. it is clear that dwelling investment activity will rise strongly over the period ahead. over the past three months, approvals to build private dwellings numbered almost 50, 000. that is an increase of about 27 per cent from the figures of a year earlier, and is the highest threemonth total in

conditions have bis central bankers ’ speeches improved a little from the very weak situation earlier. there may also be an element of noise in the quarterly data. the view we have taken, pending further evidence, is that there is probably both noise and signal in the result. hence, our assessment is that inflation is not quite as low as it might have looked six to twelve months ago, but nor is it accelerating to the extent a literal reading of the latest data might suggest. the general situation – 18 months of below - trend growth, a rise in unemployment, a marked slowdown in wages – is not one that would be obviously associated with a sustained rise in price pressures. our view remains that the outlook for inflation, while a little higher than before, is still consistent with the medium - term target. monetary policy is very accommodative. the cash rate has been unchanged since august last year. it and most borrowing rates are at multi - decade lows. the sorts of things that are normally expected to result from low interest rates are increasingly in evidence : • savers are looking for higher return assets as the yield on safe assets has fallen • asset prices have risen • credit growth has picked up somewhat for households, and particularly for investors in housing, where it is running at an annualised pace of close to 9 per cent • construction of dwellings is set to rise, probably quite strongly • liaison suggests that lenders are becoming more accommodating to potential business borrowers and few complain about availability of credit • the exchange rate has depreciated, though it is still high by historical standards. on the whole, then, accommodative monetary policy is playing its part in supporting sustainable growth in demand, consistent with the inflation target. of course, the outlook contains many uncertainties, not least the ‘ hand over ’ from mining investment spending to sources of demand outside mining. in some important respects, the basis for such a handover is coming into place, as i have just described. the question then is : will the additional demand likely to be generated outside mining as a result of these trends be just the right amount to offset the large decline in mining investment spending, so keeping the economy near full employment? no - one can answer that question with great confidence. moreover, even if it were possible for forecasts to be much more accurate than experience could possibly lead us to hope, it could not be assumed that a shortfall in demand could necessarily be made good in