RBA reflects on post-pandemic “roaring twenties” | Liverpool City Champion


Whether the world economy finds itself in the “roaring twenties” or in post-pandemic malaise depends on the choices made now, the Reserve Bank has warned.

The post-pandemic world does not need to be risk averse, with slow growth and moderate dynamism, RBA Deputy Governor Luci Ellis said at a trade event on Thursday.

“People and businesses can and have adapted,” she told the Australia Economic Development Committee forum.

Unlike the global financial crisis, “this time demand is rebounding strongly, supported by policy,” she said.

“None of these advances can compensate for the loss of human life due to the pandemic itself,” she said.

“All the more reason not to make the tragedy worse by choosing the path of risk aversion and slow recovery.”

Shifts in demand between goods and services have opened up industry-specific business opportunities, including for new businesses.

“The financial sectors around the world are in good shape,” said Dr Ellis.

“The lines of business are also in a much better financial position than they were after GFC.”

Profits recovered quickly and the tax support allowed some companies to cash in considerably more money than before, she said.

In addition to remote working and teleconferencing, there is an increase in online sales, new products and services, new suppliers, and an increased focus on what matters.

“Even the supply disruptions that everyone is concerned about can turn out to be the constraint that stimulates some creativity,” she said.

There have been advancements in medical technology, logistical achievements in vaccine deployment, and new insight into data through tracking of the number of cases and vaccination coverage in the media.

“No one can predict exactly what is going to result from all of this,” she said.

But she feared that the complexity of new technologies would create a barrier to entry.

The few companies that succeed in exploiting these innovations gain an advantage that other companies cannot overcome.

“The result is that one winner takes most of the world with increasing focus. The question is to what extent are these winners incentivized to continue innovating to get ahead of their future rivals,” Dr. Ellis said.

The RBA remains hopeful that wage growth will occur – one of its demands for raising interest rates – but market economists point to 2023 as the likely timeframe for a bigger paycheck.

Critical rates on investment projects have remained high even though interest rates and the cost of capital have fallen since GFC.

“If the perception of risk increases, people will want the benefits of investment projects to still exceed the cost of financing,” she said.

“And because everyone perceives the risk to be higher, potential rivals do not come in. Thus, the market power of incumbents is preserved.”

Associated Australian Press


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