The grounds for optimism about our growth prospects, which were shared by most private sector forecasters, have been spelled out on a number of occasions, but let me recap briefly: •  the Australian economy had strong momentum — it had been growing at about 4½ per cent for a number of years, yet it had not built up any of the imbalances that are common late in an expansion;  •  inflation, although rising slightly, was moderate, as was the growth of wages;  •  asset prices, although on a rising trend, were not obviously overheated and the balance sheets of the corporate and financial sectors were in good shape;  •  a similar situation applied to physical investment, which meant the risk of excess capacity developing was minimal;  •  the current account of the balance of payments was being reduced under the influence of rapid export growth;  BIS Review 29/2001  1  •  the fiscal impact of the various tax measures associated with the introduction of the GST was expansionary by all the conventional measures; and  •  although monetary policy had been tightened, the level of real interest rates was not high by historical standards, credit was easily available, and the exchange rate had fallen to a point where it was very competitive.
Of course, there were some worrying signs, but they seemed less significant than the factors listed above. Households in particular had taken on a lot of debt by their past standards, though not by international standards; they were also having to cope with higher oil prices.