The “unique nature” of the pandemic recession behind Australia’s resilience: RBA

The Reserve Bank of Australia said the recovery from the current recession is very different from the recovery from past economic shocks such as the global financial crisis and the Great Depression.

Brad Jones, Head of Economic Analysis at RBA, said: Keynote speech Minerals Week Australia-Asia Investment Outlook, the current economic shock, unlike other episodes, gives a bright outlook for the current economic recovery.

One difference is the origin of COVID-19’s economic contraction due to a severe shock in the global supply chain, unlike GFC, which stemmed from the collapse of some of the financial systems.

Another important difference is the “abnormal size and composition” of government policy responses, which keeps household and corporate balance sheets better than they were before the recession.

Mr Jones said domestic and international economic activity had recovered after the deregulation, reflecting the “unique nature” of the current financial crisis.

“In fact, Australia’s activity and the speed of labor market recovery are very similar to past recessions,” he said. “This should give us hope that there will be less financial scars.”

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(Australian Bureau of Statistics, 2021)

The RBA believes that increased household savings could accelerate consumer spending and investment. If this happens, unemployment will fall faster and inflation will rise more rapidly.

Uncertainty and risk aversion usually follow a downturn, but this time it may not last long, Jones said.

“It’s too early to completely eliminate the possibility of over-precise action by households and businesses, as seen internationally here in Australia in the wake of past shocks such as the Great Depression and GFC. I can see it, “he said.

According to the latest statistics from the Australian Bureau of Statistics, private investment increased by 5.3% in the March quarter, contributing 0.9 percentage points to GDP growth.

Household spending also increased by 1.2%. However, it is still below the pre-pandemic level. Spending growth also outpaced disposable income growth, with household savings income ratios declining from 12.2% to 11.6%.

Treasury Josh Frydenberg said it was very encouraging that the economic recovery was being driven more and more by the private sector, despite more than half the government’s support.

“There are only five other countries that can boast a bigger economy than before the pandemic.” Freidenberg said At the National Accounts Press Conference in the March quarter. “And we achieved that goal while keeping the number of COVIDs lower than almost anywhere else in the world.”

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Josh Frydenberg Treasurer at a press conference in the Blue Room of the Houses of Parliament in Canberra, Australia, June 2, 2021. (Sam Mooy / Getty Images)

He added that Victorian lockdowns are a reminder of uncertainty about current challenges.

“There are still challenges, and I can’t be complacent,” Freidenberg said.

Shadow Treasury Secretary Jim Chalmers said the economic recovery would not be fully established until there were fewer blockades in countries that depended on vaccine deployments.

“Australian people can’t rely on top-notch recovery if the government is in the bottom third of the countries where the vaccine is deployed,” said Chalmers.

Meanwhile, the Reserve Bank of Australia has decided to keep the discount rate at 0.1%, saying inflation remains low and below the bank’s target.

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