in the outlook for our own economy relates to a fairly substantial change in the outlook for the world economy. back in early august, as our previous statement went to press, the consensus forecasts for the 14 countries which dominate our export trading suggested relatively slow growth this year but quite a marked pick - up in growth next year ( figure 1 ). as we went to press with last week ’ s assessment, the general expectation was for growth to be significantly slower this year than previously expected, and growth next year to be even more markedly lower than previously expected ( figure 2 ). and this deterioration in the world outlook seems to get somewhat worse with every passing week. figure 1 export partner gdp growth august 2001 monetary policy statement ( annual average percentage change ) source : rbnz, consensus. figure 2 export partner gdp growth november 2001 monetary policy statement ( annual average percentage change ) source : rbnz, consensus. moreover, the deterioration is not confined to a single country. most economists are now expecting a recession in the united states. almost all economists are expecting a recession in japan. several of our biggest trading partners in asia are clearly in recession already. europe continues to slow down. only australia, among our main trading partners, seems to be enjoying reasonably robust growth for the moment. ( figure 3 ) figure 3 sum of 2001 and 2002 export partner gdp growth ( annual average percentage change ) source : rbnz, consensus. and this slowdown in the world economy is bound to have an impact on the new zealand economy, in particular by reducing the demand for our exports and reducing the prices of those exports. we are beginning to see that already, and as it occurs we expect to see both some reduction in growth in new zealand and some downwards pressure on prices - including some reversal of the very strong increase in the price of things like meat and dairy products, which in recent months has done so much to push up the price of the average food - basket. so it seems reasonable to believe that inflation will be much less of a problem as we look forward 12 months than it has been over the last 12 months. having explained our decision to reduce the official cash rate last week, let me use this situation to make four points. price stability means neither inflation nor deflation the first point i want to make is that the reserve bank is just as serious about keeping inflation above zero as it is about keeping it below 3 per cent. dropping interest rates now is about preventing inflation falling too low. and if inflation threatened to

part of that, the ssm is working to take stock of supervisory best practices. more action is needed to address shortcomings in insolvency, collateral and taxation frameworks. accounting standards are also important to address the issue. in the us, accounting standards require us banks to reduce, after six months, their npes to the market value of their collateral, if any. balance sheets are therefore cleaned up of bad loans rather swiftly. this illustrates how accounting standards interact with supervisory concerns. until now, the incurred loss model has been applied under ifrs which does not impose a timely treatment of npes by the banks. as a consequence, npes accumulate in banks ’ balance sheets, consuming capital and not contributing to banks ’ profitability. the introduction of ifrs 9 as from 2018 will change this situation. the ecb has already publicly expressed its support for a swift endorsement of ifrs 9. in our view, the new requirements for the classification, measurement and impairment of financial instruments, as well as the new general hedge accounting model, constitute an improvement over the previous requirements in ias 39. moreover, we believe that some aspects of the non - performing exposures ( npes ) can be defined as impaired exposures and past due ( > 90 days ) exposures. the ratio of non - performing loans refers to the ratio of non - performing loans to total gross loans. bis central bankers ’ speeches new standard may be an improvement from a financial stability perspective. the merits of the new expected credit loss model will clearly depend on its proper and consistent implementation in the financial sector. in this perspective, it is important that more granular instructions are given by the standard - setters and regulatory authorities in order to ensure that the implementation of the new standard is not subject to different interpretations that would not respect a proper level playing field. at the same time, it will be crucial to monitor the application of ifrs 9 in order to ensure that there are no unintended cyclical consequences of its implementation. in the us, the fasb just announced the approval of similar standards that nevertheless will only start to be applied in 2020. us banks have been critical of what will be a major change in frontloading provisions for credit risk. the introduction of both new standards will be a substantial change that will affect banks, already subject to more demanding regulation to which new features will continue to be added until year - end, albeit with the promise of not leading to a “ significant increase in capital