the pressure comes off the house - building sector. the continued modest growth in average wages to date also gives us some confidence. to the extent that there is an upward risk on inflation in the medium term, it is more likely to come from international developments as the world recovery gathers momentum. i will conclude by saying a few words about housing credit and house prices. as we said in our quarterly statement on monetary policy, “ the run - up in credit growth and the associated boom in house prices in recent years presented two implications for the economy : they tended to boost growth in the short term, but carried the risk of a damaging correction if they continued too long. ” in fact, they represented the one internal imbalance that could have put at risk the continuation of the long economic expansion that has been so beneficial to the australian community. it is not surprising, therefore, that we experienced a feeling of relief when data started to emerge this year which suggested the worst of the excesses may be past. first, we saw three monthly reductions in loan approvals starting in november 2003 which amounted to a cumulative fall of 20 per cent. approvals are now running at about $ 12 billion per month instead of $ 15 billion at their peak last year. it is still far too early to know whether lending is returning to a sustainable pace - certainly $ 12 billion per month is still far too high - but at least some progress has been made. certainly, the prospect of a return to sustainable rates of growth of credit seems brighter than for several years, and with it the increased likelihood that the run of good economic outcomes of the last decade will continue. more recently, we received very strong evidence that housing prices have not only slowed their rate of increase, but have fallen in level terms so far this year. this has occurred in most state capital cities, including the two largest, for australia on average, and for both houses and apartments. as the fall in prices becomes widely known, it should allow potential house purchasers to take their time and not be afraid, as so many were, that they had to rush in and buy for fear of missing their last opportunity. it should enable them to resist the blandishments of the banks, brokers and other commission agents plying them with offers of seemingly generous quantities of credit. it should also reinforce the recent tendency of investors to question their assumptions about easy capital gains. as such, we expect that the housing market will continue to go through a much - needed cooling phase

we cannot pretend that there are not very real concerns about the short - term outlook, it is still not unreasonable to think that the world economy will gradually work off the excesses of the boom and that we will in due course experience better conditions than we see just now. that remains the majority view of observers. some medium - term possibilities on the assumption, for the moment, that that view is right, it is worth asking what similarities or differences we might expect in the next half decade as compared with the preceding period of growth in the second half of the 1990s. here are some possibilities that occur to me. 1. overall, us growth will probably be more moderate than it was from 1995 to 2000, which was an exceptional period and contributed to some macroeconomic imbalances. whether that means global growth will also be lower than in the second half of the 1990s, or about the same but better balanced between major regions, is not yet clear. it could be hoped that we might see better growth in japan than we have seen in recent times. we could also hope for the same from europe. better balanced growth ordinarily would be a recipe for less variability in exchange rates and capital flows among the major countries, although such a conclusion would depend on currency alignments being about right to begin with. 2. non - japan east asia will once again be the world's fastest growth area ( in fact, that is already the case ). more specifically, china will continue to emerge as an increasingly big economy and will account for an increasing share of global trade. china has doubled its share of the world export market over the past decade. of course, china is not only an exporter, but an importer as well, which creates opportunities for other nations'firms. china also has some structural challenges, which are still in the process of resolution. 3. prices overall seem likely to be pretty stable, with inflation rates low. in both europe and the united states, core inflation rates will probably be declining for the next year or so, and will by then be quite low. examples of deflation - that is an actual fall in the price level, as opposed to disinflation, a decline in its rate of increase - could conceivably become a little more common around the world in this half - decade. in fact, at present this is particularly noticeable in asia, with several countries ( including both japan and china, the two largest regional economies ) experiencing falling prices over