to those we have observed recently for a while yet. residential investment will reach new highs over the period ahead. household consumption is expected to record moderate growth. with national income growth reduced by a falling terms of trade, this requires a modest decline in the saving rate. it doesn ’ t seem reasonable to expect much more from consumption growth than that. resources sector investment has a good deal further to fall yet over the next two years. other areas of investment seem very low and while i would have expected that by now these would have been showing signs of strengthening, the most recent indications are for, if anything, a weakening over the year ahead. public final spending has not been growing and fiscal consolidation still has some way to run. under the current macroeconomic conditions, it would seem inappropriate for governments to seek additional restraint here in the near term. inflation is likely to remain low. growth in labour costs is very low and some of the forces that were pushing up certain administered prices have started to reverse. so even if the exchange rate were to fall further, which in my view it needs to, we seem unlikely to have a problem with excessive inflation. putting all that together, as things stand, the economy could do with some more demand growth over the next couple of years. of course, these are forecasts. they might be wrong. in fact, they will be wrong, in some dimension or other. our published material goes to some lengths to articulate a range of “ risks ”. it is easy to think of “ downside ” ones in the current mood of determined pessimism. but it is not entirely impossible to think of upside ones as well. a further fall in the exchange rate, which is not assumed in the forecasts, would add both to growth and prices. if one thinks that such a decline at some point is likely, that constitutes an “ upside ” risk. of course, the list of countries that would prefer a lower exchange rate is a long one and we can ’ t all have it. that being so, we might give some thought to trying to create some upside risks to the growth outlook through policy initiatives. the reserve bank will remain attuned to what it can do, consistent with the various elements of its mandate – including price stability, full employment and financial stability. we remain open to the possibility of further policy easing, if that is, on balance, beneficial for sustainable growth. the temptation, of course, is to presume outcomes can be fine

provided a strong anchor for both inflation and wage expectations. after two decades of the inflation - targeting regime there is a fairly broad understanding that unsustainable aggregate wage growth is likely to lead to higher inflation, and thus higher interest rates. looking forward, it is clear that the structure of the economy will continue to evolve. over time, the strong growth in investment in the resources sector will give way to a large increase in exports of resources. this will likely mean some moderation in the demand for labour in the resources sector, and other forms of activity and employment will need to pick up. as this transition occurs, the types of new jobs that are created will also continue to evolve. inevitably, there are uncertainties as to what these new jobs will be, and where they will be located. in the face of this uncertainty, it is essential that the labour market retains its flexibility. the industrial relations laws and practices are important here, but they are by no means the full story. flexibility also comes from having an adaptable workforce – one that has the right general skills, the right training and the right mindset. over the medium term, whether or not australia fully capitalises on the opportunities that the growth of asia presents depends critically upon the ability of both workers and businesses to adapt, and to build and use our human capital. many of these opportunities lie beyond the resources sector – in areas like the unique tourism experiences that are possible here in tasmania, in high - end manufacturing, in high - quality food and in professional services. if we are to take advantage of these opportunities, a highly skilled and outward - looking workforce is critical. recent outcomes i would now like to shorten my gaze a little to look at quite recent developments in the labour market and what they tell us about the overall balance between supply and demand. as i discussed at the outset, the current national unemployment rate is 5¼ per cent, and has been in the 5 to 5¼ per cent range for two years now. as i said, this is a very good outcome by international standards. bis central bankers ’ speeches notwithstanding this, the labour market appears to have generally softened in recent months, with only modest growth in total employment, a decline in average hours worked, and a decline in the employment - to - population ratio ( graph 9 ). various indicators also suggest a lower rate of job creation than was the case a while ago. graph 9 two industries stand out as having particularly weak employment growth over recent times (