Finally, we have seen the Australian current account deficit as a per cent of GDP move relatively quickly from its smallest level in twenty years to its largest. These developments are all related, as I hope to show, but I will start my story as usual from the perspective of the world economy.
After the mild recession of 2001, the world economy moved into an expansionary phase, which has been robust overall, but has been marked by very disparate growth rates among major regions. Two regions in particular - Japan and Europe - have made only minimal contributions to the expansion which has been led by the United States, China and other East Asian countries.