The Reserve Bank is widely expected to start the easing process today, as it is fairly confident that inflation will be down to its target range by 2010.
At the same time, business and household confidence is low, credit growth has slowed and even the job market has shown signs of weakness, but no more (so far as anyone can tell) than the modest slowing allowed for in official forecasts.
Asset markets are where the signs of stress are most evident. Equity prices everywhere have fallen a long way. Experts are trying to pick the end of the correction, but there is no agreement about this. Fears of further pain to come cannot easily be banished.
Commodity prices have fallen, on some estimates, by around 20 per cent or more. This is a relief to most people, with the substantial fall in the price of oil providing the most obvious good news as its benefits flow on to stressed households and (by reducing petrol price inflation) central bankers.
US house prices are still falling. Financial institutions have made massive write-downs, but most people believe there are more to come. The extreme weakness of mortgage providers Fannie Mae and Freddie Mac spreads the pain of the US housing market around the globe.
It may surprise some readers to learn that non-US central banks hold bundles of Freddie's and Fannie's mortgages - now, by any standard, greatly devalued. "Too big to fail" applies without qualification to these financial institutions.
In Britain, house prices are weak and the overall economy is suffering from the weakness of “the city” as it digests the effects falling asset prices.
The Japanese economy has remained stubbornly sluggish and its Government has turned to fiscal expansion. An increasingly elderly and declining population is unlikely to respond with excessive enthusiasm.
China held its US-based assets while the US dollar was falling and will have welcomed its turnaround in recent times. China benefits from lower commodity prices and has plenty of new projects to maintain its extraordinary expansion.
India and Brazil continue to make strong contributions to global growth. Inflation threatens to undermine their contributions, though there is some evidence of slight easing of inflation in the "BRIC" (Brazil, Russia, India and China) nations.
Russia has been preoccupied with its attempts to bring to heel unruly people on its borders. In so doing, it has signalled it is back as a serious source of geopolitical tension.
In an increasingly interdependent world, economic warfare will be far more effective than it was. The bottom line is slower global growth and some amelioration of inflationary pressures.
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