our location was seen as a liability – we were simply too far from the major engines of global growth. today, though, our location is seen as an asset. we live in the most dynamic region of the global economy and we have capitalised on this with strong trade and personal links with asia. over recent times, we have benefited significantly from these links. the most obvious example is the very strong growth in exports of our resources. but increasingly, it is also being seen in the growth of exports of high - quality services, food and manufactured goods to asia. naturally enough, after 26 years of economic expansion people wonder what the future holds. this is an issue that often comes up in discussions with overseas investors. so i would like to use the opportunity of this dinner to address three related questions that we are frequently asked. these questions are : 1 / 5 bis central bankers'speeches what are the next few years likely to hold for the australian economy? what are the challenges facing the australian economy? as other central banks reduce monetary accommodation won ’ t the rba have to, too? the next few years for a while now we have been expecting the australian economy to grow more strongly in 2018 and 2019 than it did, on average, over recent years. there are a number of reasons for this. we are all but through the decline in mining investment to more normal levels, there is a large pipeline of urban infrastructure work to be done, the global economy is experiencing a solid upswing, commodity prices are up and financial conditions remain accommodative. all this is helping. the rba will be releasing our latest economic forecasts tomorrow in the statement on monetary policy. these forecasts will be largely unchanged from the previous set of forecasts. the rba ’ s central scenario remains for the australian economy to grow at an average rate of a bit above 3 per cent over the next couple of years. this outlook has not been affected by the volatility in the stock market over recent days. indeed, it is worth keeping in mind that the catalyst for this volatility was a reassessment in financial markets of the implications of strong growth for inflation in the united states. for some time, many investors had been working under the assumptions that unusually low inflation and unusually low volatility in asset prices would persist, even with above - trend growth at a time of low unemployment. a reassessment of these assumptions now appears to be taking place against the backdrop of

an issue we have been discussing around our board table for some time. while low growth in wages has helped boost employment, it has also put the finances of some households under strain, especially those who borrowed on the basis that their incomes would grow at the old rate. and in terms of the inflation target, it is difficult to see how a continuation of 2 per cent growth in wages is compatible with us achieving the midpoint of the inflation target – 2½ per cent – on a sustained basis. so from that perspective alone, a pick - up in wages growth over time would be welcome. perhaps more importantly, sustained low wages growth diminishes the sense of shared prosperity that we have in australia. in our liaison with businesses, including here in adelaide, many tell us about the very competitive environment in which they are operating. they tell us about how this competitive environment means that they have limited ability to pay bigger wage increases. at the same time, though, we are hearing a few more reports of larger increases in those areas where there is a shortage of workers with the necessary skills. after all, the laws of supply and demand still work. we also see evidence in the aggregate data that wages growth has troughed and we expect to see a further pick - up. this is likely to be a gradual process, though. at today ’ s meeting, the board also reviewed the staff ’ s latest forecasts for the economy. these will be published on friday in our quarterly statement on monetary policy. those of you who are close readers of this document will notice some changes in this issue, as we seek to make the report more thematic. the latest forecasts should not contain any surprises, with only small changes from the previous set of forecasts, issued three months ago. this year and next, our central scenario remains for the australian economy to grow a bit faster than 3 per cent. this would be a better outcome than the average of recent years. if we are able to achieve this, we will make inroads into the remaining spare capacity in the economy and see a further modest decline in the unemployment rate. inflation is expected to remain low, at around its current level for a while yet, before gradually increasing over the next couple of years, towards 2½ per cent. a key element here is the pick - up in wages growth that i just mentioned. so, in summary, there has been progress in lowering unemployment and having inflation return to around the middle of the target range,