us growth portends a softening elsewhere, or whether other regions are big enough and internally vibrant enough to carry on growing reasonably well in the face of the us slowdown. to a large extent this will hinge on how widely the slowing extends within the us economy itself, and how long it lasts. to date, it has been largely confined to a reduction, albeit a pretty large one, in construction of dwellings, after a period of unusually strong activity in that sector. people have been asking whether it will spread further, especially given the recent travails in the sub - prime mortgage market, which had at the peak accounted for about 15 per cent of mortgage loans made to us households. a decline in credit standards during 2006, as lenders sought to keep business growing in the face of the slowing demand for loans and a change in trend in house prices, has since resulted in a rise in loan arrears. in turn, this has resulted in a blow - out in spreads on the low - rated tranches of the securities issued by some of the us lenders active in this market, and a number of loan originators in the sub - prime space went out of business. there was understandably a concern that this sequence of events could prompt a pulling back by lenders for housing generally, which would deepen the downturn in construction. there was also a possibility that there would be a more widespread reassessment of risk and a tightening in credit across the us economy, so dampening growth more generally. but so far, the us economy and financial system seem to be absorbing the sub - prime problems pretty well. there has been a significant tightening in credit standards in the sub - prime area, as there had to be, but no widespread withdrawal by lenders more generally. while the us housing sector has yet to show much convincing sign of a pick - up in construction, the softness in the us economy does not seem to have spread to consumer spending, as incomes have been supported by ongoing gains in employment. that does not necessarily mean we have seen the last of concerns about us weakness but, at the moment at least, adjustments to the growth outlook are at the margin, rather than amounting to a wholesale re - think of economic prospects. it is also noteworthy, and very important from a global perspective, that underlying inflation appears to have come down in the us somewhat over the past six months, having drifted higher for the previous six months. low and stable inflation has

glenn stevens : overview of the australian economy and future challenges opening statement by mr glenn stevens, governor of the reserve bank of australia, to the house of representatives standing committee on economics, canberra, 26 november 2010. * * * when we last met with the committee in february this year, it was becoming clear that the recovery in the global economy was proceeding faster than many had expected. it was also clear that the strongest performance was in the emerging world, while recoveries in countries that had been at the centre of the financial events of 2007 and 2008 were relatively subdued. global financial markets had continued to improve, but were paying close attention to the rise in sovereign debt in a number of countries. at that time, people were talking about an expansion in global gdp of something like 4 per cent in 2010. as it turns out, it looks like the outcome will be stronger than that : current estimates for the year are about 4¾ per cent, which is above trend. the pattern of growth is still rather uneven. the additional strength has been concentrated in the emerging countries, with growth in china and india running at a pace of around 10 per cent in 2010. in contrast, growth of about 2½ per cent for the g7 group, after a contraction of around 3½ per cent in 2009, will leave a considerable margin of spare capacity and particularly of unemployed labour. financial markets and policymakers have maintained, and indeed increased, their focus on issues of sovereign debt sustainability. first greece, and now ireland have sought financial assistance from european partners and the imf, after a change in economic circumstances and a large rise in market borrowing costs left authorities with little other option, even with deep cuts to spending. across continental europe and the united kingdom, governments are embarking on a path of fiscal consolidation, in order to put public finances on a sounder footing in the face of increased obligations and reduced revenues. these programs will unavoidably have some short - term dampening effects on economic activity, which will likely become clearer during 2011. but the scope of alternative possibilities open to the governments concerned is really rather limited. in this environment it is no surprise that the major central banks are mostly maintaining very low interest rates and in some cases increasing the sizes of their already expanded balance sheets via asset purchases. these actions are designed to impart some further stimulus through reducing long - term interest rates even further or via effects on private - sector balance sheets. yet at the same time many other countries have moved to tighten