we spoke about at the december hearing, when i suggested it could be largely due to the fall in house - building and resulting reductions in sales by those parts of the manufacturing sector which service the housing sector. it was difficult for a while to discern the trend in consumption behaviour because of shifts in spending patterns caused by the introduction of the gst and the olympic games. but now that the dust has settled, it is clear that consumption, while doing quite well over recent months, is no longer growing at the heady rates it was a year or 18 months ago. employment also fell for a few months in the second half of 2000, and there is no doubt that the labour market has softened following the strong growth recorded in the middle two quarters of 2000. again, however, the construction sector is the main explanation for the weakness in the second half of last year. over the period from august last year to february this year, construction employment fell by 48, 000, while employment other than in construction rose by 41, 000. at the same time as we were receiving this information on business confidence, spending and employment, we were also receiving news on inflation. here the most important data were the cpis for the september and december quarters, both of which were below our expectation. they suggested that inflation was well under control — in fact, we lowered our estimate of underlying inflation after receipt of the december quarter figure in late january — and they also pointed to the possibility that business profit margins were being squeezed. they thus reinforced the impression that was building of an economy that was slowing more than expected, in a world that was slowing more than expected, and where current inflation and future inflation were within the target zone we aim for under our inflation - targeting regime for monetary policy. the decision to ease monetary policy at our first meeting this year was a relatively easy one, and as you know, we eased again at the following two meetings so that the cash rate fell by 125 basis points in a little over two months. collectively, this represented an uncharacteristically large move and deserves some explanation. basically, we realised that a significantly lower level of real interest rates was required so that the stance of monetary policy would be clearly expansionary in that it would be supportive of economic activity. we felt we should, and could, get to such a position relatively quickly for two main reasons : ( i ) we had undergone a relatively abrupt change in our view of the world. as i said before, it

switzerland, sweden and most asian countries — and, of course, australia — the euro area was the exception. the slowing us economy, and particularly the cutbacks in investment in computing and electronics, also has had an impact on exports from asia, with the result that aggregate east asian gdp growth in the final quarter of 2000 seems to have been about zero ( leaving aside the special case of china ). the euro area has been less affected, but there is evidence from the manufacturing sector and from business surveys that growth is edging down nevertheless. i turn now to the second factor, namely the weakness in the australian economy in the second half of 2000, and its flow - on effects to the first part of this year. as i have conceded before, we did not foresee the extent of this weakness, and i am not aware of anyone who did, although some probably got closer than us. if you had told me before the event that the fall in house - building, a sector which only accounts for 5 per cent of the economy, would be large enough to outweigh reasonable growth in the other 95 per cent of the economy, i would not have believed you. our analysis of other countries ’ gst experience had suggested a much smaller fall than actually occurred. i am not saying that the housing contraction was the only thing that happened to the economy ; other things have also clearly slowed. but it was the thing that turned a relatively unexceptional slowdown into a small contraction. of course, what we were witnessing was not the normal cyclical development of an economy, but the transitional effects of a once - in - a - generation structural change to the tax system. the fact that it led to a negative number for the change in gdp had a big effect on people ’ s confidence. we saw this most clearly in the reaction to the release of the december quarter national accounts in early march. the australian dollar lost 3 us cents over the next ten days to fall below 50 us cents for the first time. at about the same time, consumer confidence, which had until then held above its long - term average, fell sharply to well below that average. the reaction was so large that a number of commentators raised the possibility that the country could " talk itself into a recession ". i am pleased to say that the mood has improved somewhat since that time. there were some other signs of weakness during the second half of last year, such as the fall in business confidence. this was something