So what are we to make of the sell down in global markets?
Will it have an impact on the Australian economy?
The Reserve Bank is wary, but says China will be more important to the health of our economy.
China’s January economic update will be out this week.
No significant change is expected, but the figures will highlight the vast difference with the US, Japan and Europe, and why our economy will outperform once again this year.
Friday saw the RBA release its first Monetary Policy Statement for 2010 and it was an upbeat outlook, with higher growth, slightly higher inflation and expectations of rising interest rates.
The global market gyrations underlined the RBA’s wariness about the strength of the US, Japan and European markets and financial systems.
All are surviving on low cost money. Now that is starting to worry the life out of bankers who thought the good times were back.
The weaknesses of the eurozone are now exposed for all to see, and there are no easy ways out of the situation. Portugal, Spain, Ireland, Italy and the UK are all exposed, to varying degrees, by the Greek crisis.
It has nothing to do with the outlook for Australia over the next one to two years, as detailed by the RBA.
The RBA points out that while the risks to the economy are finely balanced at the moment, it is a touch more worried by the possibility that our recovery might grow more strongly than expected, causing rapid wages growth, higher inflation and bottlenecks.
"Perhaps the most likely scenario in which growth and inflation are both significantly higher than expected is one in which confidence continues to build on the back of a further pick-up in commodity prices and there is a larger increase in investment in the resources sector than currently expected," the RBA said.
It sees dangers from bottlenecks emerging in the construction sector (outside of housing) and feeding through into rising wages and costs.
And on the downside:
"The most likely scenario in which growth turns out to be much weaker than the central forecast involves a significantly slower recovery in the world economy than currently expected."
The RBA lifted its growth and inflation forecasts for the next year to 18 months by a touch and its central forecast "is for the economy to grow at around 3¼–3½ per cent in both 2010 and 2011".
"Private demand is likely to strengthen through 2010, with growth in the early part of the year being supported by strong public demand.
“The improvement in the global economy and the increase in commodity prices are expected to support continuing high levels of investment in the resources sector, and dwelling investment is expected to grow strongly.
"While overall growth in the economy is forecast to be reasonably strong, the appreciation of the Australian dollar that has taken place as the outlook for the resources sector has improved will restrain activity in a number of industries that are exposed to international competition.
"Underlying inflation is expected to continue moderating in year-ended terms to reach a low of a little under 2.5% in the second half of 2010, before rising a little thereafter.
"Inflation expectations remain contained and the effects of the significant slowing in wage growth seen last year and the appreciation of the exchange rate have yet to fully work their way through.
“Notwithstanding this, these current forecasts represent a modest upward revision to those in the November Statement, with recent data suggesting that the economy starts the current upswing in activity with somewhat less spare capacity than earlier thought likely.
"Year-ended CPI inflation is expected to pick up over the next couple of quarters, as the temporary factors that have held it down drop out of the calculations.
“By late 2010, CPI and underlying inflation are expected to be running at similar rates and consistent with the medium-term target", the RBA said.
No mention in this of the risks of a housing price breakout, despite the 13.6% rise in prices last year as outlined in last week’s ABS house price index.
