The Australian economy has continued to grow strongly, despite the cyclical downturn which hit most OECD countries in the second half of 2001 and in 2002. GDP is estimated to have grown by 3¾ per cent in 2002, up from 2.7 per cent in 2001. The expansion in 2002 was led by buoyant domestic demand, which entailed a widening of the current external deficit to around 5 per cent of GDP in the second half of the year, although even larger external deficits were registered in the late 1990s. Part of the buoyancy of domestic demand owes to the loosening of the fiscal stance, which brought the move to general government surpluses to a temporary halt. Economic activity was further supported by distinctly easy monetary conditions, brought about by a series of interest rate cuts by the Reserve Bank in 2001 and a low Australian dollar. Notwithstanding robust growth and a lower exchange rate, consumer price inflation – adjusted for the effect of the introduction of the goods and services tax (GST) in mid-2000 – has been kept in line with the Reserve Bank’s 2 to 3 per cent inflation target. However, the employment gains made during the past two years have sufficed to reduce the average unemployment rate to around 6¼ per cent. This still leaves a small margin of cyclical unemployment....