would like, the adjustment to the decline in the terms of trade is well advanced, and nonmining activity is improving rather than deteriorating. if the latter trend continues, it is credible to think that we can achieve better output growth, particularly as we reach the later phases of the decline in mining investment. this is what is needed to bring down the unemployment rate. as always, global factors will be important and the international setting continues to be a rather complex one. since the last hearing, growth in the chinese economy has continued to moderate. growth in other parts of asia was also weaker around the middle of the year. reflecting these outcomes, forecasts for global growth over the period ahead are a little lower than they were six months ago. that was the backdrop for a period of volatility in some financial markets. the unwinding of an equity market bubble in china appears to have served as the proximate trigger for a revision of equity valuations around the world. risk appetite diminished somewhat and the currencies of many emerging market economies came under downward pressure. whether that financial volatility itself will serve further to dampen global growth prospects remains to be seen. sometimes such events portend a wider set of economic events, but just as often, they don ’ t. in the present instance, it is important to stress that long - term debt markets and core funding markets for financial institutions have not been impaired. these markets remain open and it is still the case that highly rated private borrowers and most sovereigns can borrow at remarkably low cost. things could change, but at present we do not see anything approaching the dislocation of funding channels seen in serious crises. to be sure, emerging market countries are under some pressure and some of them have specific problems that are being recognised by markets. at the same time, though, many emerging market countries have done quite a bit to improve their resilience over the years. it ’ s also worth noting that performance in the unites states continues to improve. everyone knows that, eventually, this will have to be reflected in less accommodative us monetary policy. some fretting about the first increase in us interest rates for nine years is to be expected, no matter how well telegraphed it has been. the more important factor, though, will be the pace of subsequent increases. the federal reserve has indicated this is expected to be very gradual, but of course that will depend on what happens with the us economy

switzerland, sweden and most asian countries — and, of course, australia — the euro area was the exception. the slowing us economy, and particularly the cutbacks in investment in computing and electronics, also has had an impact on exports from asia, with the result that aggregate east asian gdp growth in the final quarter of 2000 seems to have been about zero ( leaving aside the special case of china ). the euro area has been less affected, but there is evidence from the manufacturing sector and from business surveys that growth is edging down nevertheless. i turn now to the second factor, namely the weakness in the australian economy in the second half of 2000, and its flow - on effects to the first part of this year. as i have conceded before, we did not foresee the extent of this weakness, and i am not aware of anyone who did, although some probably got closer than us. if you had told me before the event that the fall in house - building, a sector which only accounts for 5 per cent of the economy, would be large enough to outweigh reasonable growth in the other 95 per cent of the economy, i would not have believed you. our analysis of other countries ’ gst experience had suggested a much smaller fall than actually occurred. i am not saying that the housing contraction was the only thing that happened to the economy ; other things have also clearly slowed. but it was the thing that turned a relatively unexceptional slowdown into a small contraction. of course, what we were witnessing was not the normal cyclical development of an economy, but the transitional effects of a once - in - a - generation structural change to the tax system. the fact that it led to a negative number for the change in gdp had a big effect on people ’ s confidence. we saw this most clearly in the reaction to the release of the december quarter national accounts in early march. the australian dollar lost 3 us cents over the next ten days to fall below 50 us cents for the first time. at about the same time, consumer confidence, which had until then held above its long - term average, fell sharply to well below that average. the reaction was so large that a number of commentators raised the possibility that the country could " talk itself into a recession ". i am pleased to say that the mood has improved somewhat since that time. there were some other signs of weakness during the second half of last year, such as the fall in business confidence. this was something