Whether the global economy finds itself in the “Roaring Twenties” or a post-pandemic malaise depends on choices made now, the Reserve Bank has warned.
The post-pandemic world does not have to be risk-averse, with slow growth and subdued dynamism, RBA assistant governor Luci Ellis said at a business event on Thursday.
The “fix” will not come from government but from decisions businesses make, she told the Committee for Economic Development of Australia forum.
“People and firms can adapt and have done so,” she said.
Dr Ellis hosed down fears about the “great resignation” of workers as Australia exits lockdown, and concerns skills shortages were holding back businesses that wanted to be innovative and take risks.
“A skills shortage is simply that no one wants the job at the wage that you’re offering and there’s a really simple solution to that,” she said.
The RBA remains hopeful wage growth will eventuate – one of its requirements for hiking interest rates – but market economists point to 2023 as the likely timeframe for a bigger pay cheque.
Dr Ellis also dismissed the argument that Australians’ hunger for housing investment had reduced the appetite for investment in productive capital.
“For all the discussion of housing being an unproductive asset, well it isn’t now, it’s a workplace,” she said.
Homes are usually built to house a growing population but the lines have blurred, she said, and tipped ongoing demand for renovation.
Financial sectors globally are in good shape and businesses are in a much better financial condition than they were after the global financial crash.
Profits have recovered quickly, and fiscal support has meant some firms are considerably more cashed up than before, she said.
As well as remote working and teleconferencing, there are increased online sales, new products and services, new suppliers and an increased focus on what is important.
“Nobody can predict quite what will come from all of that,” she said.
“Even the supply disruptions that are on everyone’s mind can turn out to be the constraint that spurs some creativity.”
There have been advances in medical technology, achievements in logistics in vaccine rollouts, and a new-found data literacy from tracking case numbers and vaccine coverage in the news media.
But none of these advances can compensate for the loss of life from the pandemic itself, Dr Ellis said.
“All the more reason not to compound the tragedy by choosing the path of risk aversion and slow recovery,” she said.
Hurdle rates on investment projects have remained high even as interest rates and the cost of capital have fallen since the GFC.
“If perceptions of risk increase, people will want pay-offs on investment projects to be further above the cost of finance,” she said.