the unpredictable dynamics of the greek workout, had everyone very much on edge. the effects were felt globally. the actions of the ecb have alleviated the immediate funding issues for banks. tensions eased a good deal, and this has been reflected in reopened term markets, falls in sovereign spreads for countries like italy and spain, and a rise in equity prices. we have also heard reports that bis central bankers ’ speeches some european participants in trade finance in asia that had been pulling back in the last quarter of 2011 have begun to seek some business again recently. yet much more needs to be done to put sovereigns and banks onto a sound footing longer term. interbank activity remains constrained and unsecured funding remains expensive for banks. it is noteworthy that large corporates can borrow more cheaply than can banks with higher credit ratings, such is the odium investors attach to banks ( though this is not confined to europe ). much also has to be done on the supply side to generate growth in europe, for without growth the fiscal arithmetic will always be challenging, if not impossible. the road to sustainability on these multiple fronts is a long one, which is why, as i say, there will be more periods of anxiety in the months ( and years ) ahead. while everyone has been fixated on europe, the united states economy has avoided a “ double dip ” recession, and continues grinding out a modest expansion. in recent times, the pace of jobs growth in the united states has picked up and other labour market indicators are showing signs of improvement. the united states has its own challenges of course, not least that it must sooner or later have some fiscal consolidation and that may slow growth. america ’ s inherent dynamism and capacity to innovate, however, which is matched by few other societies, has to be seen as a positive over the longer term. then there is china. the slowdown in chinese growth – from 10 per cent to a mere 8 per cent! – is a major talking point, and some see it as portending a major crash. but some slowing was required to reduce inflation and, therefore, put growth on a more sustainable path. one can certainly think of ways in which china could have a “ hard landing ” at some point. it is very difficult for anyone to know ( doubly difficult, i think, if trying to know while sitting in a trading room in new york or london ). but if the chinese economy does slow “ too much ”,

one could expect that the chinese authorities will have both the will and the capacity to respond, the more so now that inflation has moderated. china will have cycles like other economies, but it seems likely that the chinese economy will grow pretty strongly on average for a while yet. it will be a very large economy. even at the new growth target of 7½ per cent, a lower target than in the past five years ( all of which were, of course, exceeded ), chinese gdp will equal that of the united states, in purchasing power parity terms, in about a decade. it will exceed that of the euro area within the next few years. there are issues of rebalancing the sources of growth in asia, to which i shall return shortly. but the main point for now is that the global economy is faced at present with a year of subtrend growth in 2012, according to international forecasters. this is a subdued but not disastrous outcome. and asia in particular is well - placed to do fairly well, given sensible policies. downside risks certainly do remain, and are easier at this point to imagine than upside ones. at this point though they remain risks, rather than outcomes. what then about australia? at the moment, the viewpoints of those inside australia differ somewhat from those of people outside australia. viewed from abroad, judging by what people say, observers see an economy that experienced only a relatively mild downturn in 2008 – 2009, that made up the decline in output within a few months, and that has continued to expand, albeit at only moderate pace, since then. they see an economy that has not experienced a significant recession for 20 years, that has strong banks and little government debt – and that debt remains aaa - rated. some observers worry about high levels of housing prices and household debt. this is understandable given the problems that have occurred in some other countries. but then others point out that the arrears rate on mortgages, at 60 basis points, is quite low, and that the rate of new construction of dwellings in recent years has been low relative to population needs. bis central bankers ’ speeches foreign investors see a country that remains quite open to them, and that, reflecting its economic circumstances, offers rates of return that are high by international standards, even though they are low by australian historical standards. they understand the potential returns on the mineral and energy wealth stored in or around the australian continent, and that our terms of trade have over