I have just got around to reading this speech. You can normally rely on Phil for some sanity. First, he outlines what the RBA is assuming about Europe:
In preparing the Reserve Bank's latest forecasts of the world economy, we have assumed that the European authorities do enough to avert a real disaster but are not able to avoid periodic bouts of considerable market volatility and uncertainty. There are, of course, a range of other scenarios, many of which, unfortunately, are on the downside. This inevitably means that there is likely to be considerable uncertainty about the global economy for some time.
Second, he makes a point I have regularly emphasised here, as has Mark Bouris, of Yellow Brick Road:
So the global environment is a very complex one at the moment. Over the course of this year, forecasts for world growth in 2012 have been revised down from slightly above-trend growth to slightly below-trend growth. It is noteworthy that around three-quarters of the expected increase in global output is expected to come from the emerging and developing countries, a marked change from the past when the advanced economies accounted for the bulk of growth in global output. From Australia's perspective, global growth somewhere around average, or just a little below, would make for a relatively benign international backdrop. The difficulty for many other advanced economies is that average growth will not allow them to make inroads into their very high levels of unemployment and excess capacity, and this is likely to create both economic and social strains in these countries for some time.
