Consumer demand and the housing sector continues to lead the way forward for economic growth in Australia, offsetting weaker business investment and slightly deteriorating export outcomes. This trend is set to continue in the short term.

Since the terrorist attacks on the United States of America in September 2001, analysts have been mixed in their outlook for the Australian and world economies. With expansionary monetary policy continuing to be employed by the Federal Reserve, the United States should experience some level of economic recovery in 2002. Of most importance to the Australian economy is the speed with which this recovery feeds through to recoveries in other countries, particularly those in the Asian region.

The current uncertainty is not whether, but when, the global economic recovery will take place. In such an uncertain environment, the Reserve Bank has continued to cut interest rates to insure against the worst case scenario - that of an extended global recession - with the latest reduction coming on 5 December 2001 to leave the Australian cash rate at just 4.25%.

Whatever happens from here, it may be said that Australia has so far been able to avoid an economic downturn of the scale seen in the United States and other developed countries. And with the international economy showing some signs of life heading into 2002, it may be said that the domestic economy should perform much better in 2002/03 than in 2001/02. The only real question is when trading conditions will improve, with suggestions that activity in the March quarter may remain fairly subdued.