to imagine a much more benign backdrop for the aftermath of an asset and credit boom than one where growth in employment and income is continuing, the world economy is picking up and the australian economy is relatively free of other domestic imbalances. even so, we anticipate that housing market developments will be a factor at work in reducing the rapid pace of growth in domestic spending to something more moderate. rising house prices and the capacity to collateralise the higher wealth has accommodated a rise in consumption which has consistently outpaced the rise in income over several years. in a world where dwelling prices have stopped rising and even declined somewhat, perceptions of ongoing rapid increases in wealth are presumably now in the process of dissipating. this will weaken positive wealth effects, and could possibly lead to a partial reversal in time. on the other hand, the earlier increases in dwelling prices were very large, and even with the latest data showing declines, a big cumulative rise in wealth has occurred over the past decade, most of which has not been tapped. so there may yet be some expansionary impetus in the pipeline from those earlier gains. consumption, wealth and income * current prices % % ratio of wealth to income % % year - ended percentage change consumption income * disposable income net of depreciation sources : abs ; rba the net effect is therefore hard to judge, but on balance, we are inclined to think that consumer demand will grow more in line with income over the next year or two - that is, by something less than last year ’ s cracking pace. that, together with some decline in dwelling construction activity, will result in slower growth in overall domestic spending. with the world economy doing quite well, on the other hand, external demand is expected to be stronger - the international environment will be boosting australia, rather than restraining it. it is encouraging that this picture seems, slowly, to be emerging in the available data. risks to this outlook stemming from a rising australian dollar have abated somewhat of late. the result then is expected to be good growth overall, and more balanced growth ( as between external and domestic demand ) than seen for some time. inflation will be affected over the period ahead by the fluctuations in the exchange rate and oil prices, but most likely will be consistent with our 2 - 3 per cent medium - term target. internationally, the scene has turned ( in the space of only twelve months ) from one of concern about deflation to one of inflation going higher.

conditions experienced in the first four or five months of 2004, while as strong as those of late 2003, were nonetheless better than average. consumer demand is not advancing at the same pace this year as it did in the second half of 2003, though tax reductions in the coming year will presumably offer support to consumer spending. employment has continued to rise, and the rate of unemployment is at its lowest for over 20 years. while employment growth last year owed a good deal to the effects of high levels of residential construction and the associated demand for materials, of late it looks as though employment in some of the professional services sectors has begun to increase again, after a slower period since mid 2001. hence, as the anticipated decline in dwelling construction takes shape this year, overall employment levels should continue to increase, even if at a reduced pace from that seen over recent months. growth in the state of queensland, in particular, has been very strong indeed over the past year, and much faster than for the nation as a whole. consumer spending is recorded as having grown by over 8 per cent through 2003, compared with 5 per cent for the rest of australia. dwelling investment spending surged to an all - time high in queensland at the end of last year, while for the rest of the country it was high, but no higher than the pre - gst peak in 2000. employment growth has also been faster in the sunshine state than in virtually all the other states. dwelling investment household consumption expenditure june 2000 = 100 year - ended percentage change % % index index queensland queensland rest of australia rest of australia - 2 - 2 source : abs source : abs queensland has, of course, the highest rate of population growth of any of the states, with net migration from victoria and nsw in particular. so we would expect most aggregates to be rising faster than elsewhere, but in 2003 growth in spending per head still outstripped the rest of australia, and the employment growth sufficiently exceeded growth in the labour force that queensland ’ s unemployment rate - which is routinely higher than the national average - closed quite a bit of the gap to the other states. in short, queensland had a pretty good year. employment growth unemployment rate three - month - ended average year to latest three months % % % queensland queensland rest of australia rest of australia - 2 - 2 - 4 % source : abs - 4 source : abs the housing market has been a key issue for the economy over the past couple of years and, as you would know, the rb