have been losing a bit of steam and growth has recently not been robust enough to reduce high unemployment. in australia, growth has been quite solid over the past year, unemployment is relatively low, and inflation has, for the moment, declined. in fact, growth trends have been favourable over several years now in comparison with many other economies. the charts below, comparing trends in australia ’ s real gdp per capita with that of several countries, are illustrative. of course we cannot match the extent of growth in china – a country where living standards are rapidly increasing in a process of “ catch up ” to the higher levels of high - income countries ( graph 1 ). but it is clear that compared with the us or europe, or japan, australia ’ s per capita output and income has done pretty well over the past several years ( graph 2 ). graph 1 graph 2 the task ahead, then, is to seek as far as possible to continue a solid trend like this, through various challenges which lie ahead. the future is of course unknowable, and economic forecasts unfortunately are not very reliable. but we have no option but to try to form a view of how things will probably unfold. we think the global economy will record reasonable growth over the coming year, though not as strong as the past year ( a strength that, incidentally, surprised most observers ). we think australia ’ s terms of trade, after reaching a 60 - year high in the current quarter, will probably decline a bit, but remain high. we expect that this high level of relative export prices will add to incomes and spending, even as the stimulative effects of earlier low interest rates and budgetary measures continue to unwind. we expect, and indications from businesses are that they do as well, that resource sector investment will rise further – as we experience the largest minerals and energy boom since the late 19th century. even with continued caution by households, that probably means that overall growth, which has been at about trend over the past year, will increase in 2011 to something above trend. we think that means that the fall in inflation over the past two years won ’ t go much further. of course that central forecast could turn out to be wrong. something could turn up – internationally or at home – that produces some other outcome. we spend a fair bit of time thinking about what such things could be. possible candidates might be a return to economic contraction in the united states, or a bigger

glenn stevens : monetary policy and the regions address by mr glenn stevens, governor of the reserve bank of australia, to the foodbowl unlimited forum business luncheon, shepparton, 20 september 2010. * * * thank you for the invitation to come to shepparton. no one knew, when the invitation was issued almost a year ago, that you would be battling floodwaters just a couple of weeks prior to today. it is good to see the recovery already well advanced. in the global economy, recovery from the effects of a different kind of deluge – a man - made one – has been under way for a while. progress has been quite varied, however, and the outlook is uncertain just now. i will give an update on those matters today. it also seems a fitting occasion to talk about “ monetary policy and the regions ”, since a question we are often asked is how we take account of differing economic conditions across the country in the setting of monetary policy. i will offer some perspectives on the issues that arise when we have one policy instrument for a fairly diverse economy. the essential message here is that such diversity matters, but is often not as pronounced as people assume, because all the parts of the economy are ultimately connected. things that affect one sector tend to have spillover effects elsewhere. furthermore, economies have a certain capacity to adjust to differing conditions. in australia this works reasonably well. current economic conditions the global economy continues to present a mixed picture. in the asian region, most countries have well and truly recovered from a downturn that occurred in late 2008 and the first few months of 2009. the main exception is japan. in the bulk of cases, economies are much closer to their potential output paths now than they were a year ago and policies are moving to less expansionary settings. as a result, over the year ahead the growth in the asian region is unlikely to be as rapid as over the year to mid 2010, when the “ v - shaped ” recovery was in full swing. similar comments could probably be made about latin america. in europe, the german economy has been powering ahead this year, reaping the benefits of many years of attention to containing costs and building productivity. but other continental economies are not as strong, and some are in the grip of a very painful adjustment to a world of constricted private credit and limits to budgetary flexibility. in the united states an expansion has been under way for some time, but seems lately to