These remarks were given as a scene setter for a Q&A session with AMCHAM. They offer a very brief snapshot of some similarities and differences between the US and Australian economies.

The effect of the global economy on Australia is discussed and the implications of the falling terms of trade are noted. Looking specifically at China's economy, the remarks highlight that even growth that is a bit below this year's objective (which has been lowered) would still be a considerable impetus to global demand and output.

On the US, the remarks note that a healthy US economy should not be underestimated as a driver of business thinking and ‘trend-setter’ for financial markets. The US Federal Reserve's expected tightening of monetary policy later this year should be seen as a positive action, though there may be some turbulence in asset and foreign exchange markets. The US Fed's monetary policy stance is also described as likely to be expansionary for some time yet.

The Australian economy is described as in the midst of a major transition. The Bank's role in assisting in this is discussed, with the observation that the transition cannot be fine-tuned. But managing a terms of trade event of this size without either a major increase in inflation or a major crash in the economy would be a much better outcome than achieved in previous episodes.

The remarks note that a lower terms of trade is likely to mean, other things equal, that the path of future incomes may not be as high as previously expected. Hence the focus needs to be on other factors that will assist the economy to deliver prosperity.

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