In short, global growth, while uneven, has been recovering in the places and in the form that was most likely to deliver a boost to Australia’s terms of trade. It looks like our terms of trade this year will again reach the 50-year high seen two years ago.
Sovereign and corporate bond spreads are declining – it’s a clear sign that financial fragmentation has started to recede. This is confirmed by Target2 balances having decreased by nearly 40% from their July 2012 peak. Rebalancing is also on its way. Structural budget balances have significantly improved. Crucially, the public debt-toGDP ratio has started to decrease at euro area level.