. thus far much of the additional supply has been australian ore, though it is apparent that at least some of the future increase in supply will be from other countries. perhaps it is not surprising, then, that australian discussion of the chinese economy has been through the prism of the iron ore price – these days subject to daily monitoring. a few months ago, it almost seemed as though the price of iron ore might, in terms of attention given, eclipse that other price on which australians focus with a passion, namely the price of a house. but of late house prices seem to have regained their pre - eminent place in our national psyche! turning away from china, it is quite significant that there is a good deal more optimism now in the united states. the rate of unemployment has fallen considerably and growth in wages has begun to increase. there was a weak march quarter result for growth in output, which most observers attribute to temporary factors, though it remains to be seen just how robust the return to growth has been since. the significance of a healthier us economy is two - fold. one element is that the expectations of many business people around the world, including in australia, still tend to take a cue from the tone of us business. the second is that, at some point, us monetary policy will begin to adjust to improved conditions. that will be a very gradual process, but at this stage, indications still seem to be that the us federal reserve will begin the process some time this year. it is reasonable to hope that this change in course can be accomplished without serious disruption to financial markets, but we cannot be certain of that. countries receiving crossborder capital flows have generally sought to strengthen their economic and financial fundamentals since the “ taper tantrum ” of mid 2013. the fact that the fed has signalled as clearly as possible the way it thinks about these issues should also help reduce instability. on the other hand, “ guidance ” is no guarantee of smooth sailing. moreover, we stand today at a highly unusual juncture. we see a combination of remarkably low yields on financial see ‘ the challenge of prosperity ’, address to the committee for economic development of australia ( ceda ) annual dinner, melbourne, november 2010. bis central bankers ’ speeches assets, compressed risk premia and diverging outlooks for monetary policy across the major jurisdictions. it is a complex picture for both market participants and policymakers. recently, we have seen some large and abrupt movements in currencies,

glenn stevens : economic conditions and prospects – creating the upside address by mr glenn stevens, governor of the reserve bank of australia, to the economic society of australia luncheon, brisbane, 10 june 2015. * * * i thank elliott james for research assistance. thank you for the invitation to speak in brisbane once again. the last time i spoke with this group, in july 2013, the economy was estimated to be growing at about 2½ per cent. 1 underlying inflation was 2¼ – 2½ per cent, consistent with the target of 2 – 3 per cent. two years on, the economy is growing at just shy of 2½ per cent and underlying inflation is around 2¼ – 2½ per cent, consistent with the target. in some respects, then, it might seem that not much has changed. in fact a number of important developments have occurred during that period, some as anticipated and some not. overall, the fact that not much has changed is disappointing : the economy has not picked up speed as we had hoped. in this talk, i will make some observations about the global and domestic economies, and try to give some sense of what we have learned in the past couple of years. the global economy two years ago, we judged australia ’ s trading partner group to be growing at about its average pace of around 4 per cent. it was expected that during 2014 and 2015 growth in this group would pick up a bit, to a pace a little above average. in fact, growth for our trading partners has remained at about 4 per cent and is expected to stay there over the next couple of years. to be sure, 4 per cent growth is faster than growth for the world economy as a whole, which is more like 3¼ per cent. it has been to australia ’ s advantage that we have a high exposure, for an advanced country, to the faster - growing asian region. as an example, while the euro area is a significant trading partner for australia, we were probably less affected than many countries in 2012 and 2013 when europe lapsed back into recession. two years ago, i noted that the economy of the euro area was still smaller than it was before the financial crisis. regrettably, that remains true today. europe is back on a growth path now, but it is still a fairly modest one, and it seems to require extraordinary settings of monetary policy to achieve even that. growth has recently resumed in japan after a dip in activity following the enactment of a tax increase