STATEMENT ON MONETARY POLICY
Overall, global economic growth appears to havebeen close to average in recent months, havingbeen a bit below average earlier in the year. TheChinese economy has been growing at around thesame pace as seen earlier in the year, which on anannualised basis is a bit below the authorities’ statedtarget o 7.5 per cent. Growth o total inancing inChina, which was very strong earlier in the year,looks to have slowed amid authorities’ concernsabout the strength o non-bank inancing. In Japan,the adoption o more expansionary monetary andiscal policies has seen the exchange rate depreciatesigniicantly since the end o last year and hassupported strong growth o the economy this year.In the rest o east Asia, weaker external demand isweighing on growth but domestic demand hasremained relatively resilient. The US economicrecovery is proceeding at a moderate pace,notwithstanding the eects o iscal consolidation. Incontrast, economic activity remains weak in the euroarea. Globally, inlation pressures have eased overthe past year and monetary policy has remainedhighly accommodative in most economies. The outlook or the global economy is a little soterthan at the time o the May
. World GDPgrowth is expected to remain close to averageover the rest o this year, but with annual averagegrowth around 3 per cent or 2013 relecting weakergrowth around the turn o the year. Growth is thenexpected to pick up, to be slightly above average in2014. Economic growth is expected to be strongeror Australia’s major trading partners than or theworld as a whole. The slightly weaker outlook thana ew months ago relects, among other things, theassessment that growth in China is now unlikely topick up much, i at all, in coming quarters. Rather, itis expected to remain at a pace that is close to theoicial target.Prices o most commodities have declined overthe past ew months, although spot prices or ironore remain little changed. While commodity pricesoverall remain at historically high levels, the priceso those commodities or which there has beensigniicant investment in capacity in Australia andglobally are projected to decline gradually over thecoming years. Accordingly, the terms o trade areexpected to decline over the medium term.Movements in inancial markets have beendriven by a reassessment o the uture path o USmonetary policy. In late May, the Federal Reservecommunicated that it may begin to wind downits asset purchase program later this year, leadingto expectations being brought orward or whenthe central bank would begin to tighten monetarypolicy. As a result, yields or sovereigns andcorporations moved markedly higher, althoughthey still remain very low relative to historical norms.Yields on emerging market government bondshave also moved higher. A number o emergingmarket central banks have tightened policy and/orintervened in currency markets, owing to concernsabout sharp reversals o capital inlows received overthe past ew years. Changes in expectations aboutUS monetary policy have also led to a broad-basedappreciation o the US dollar over recent months.