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An economic resurgence rivalling the Roaring Twenties could emerge if companies adapt and take risks, says a senior Reserve Bank official, suggesting the post-pandemic revival may help reverse a long-term slump in business investment.
However, a failure to take advantage of the opportunities arising from the outbreak of coronavirus globally could also leave worldwide economies facing a period of “malaise”, RBA assistant governor Luci Ellis said at a Committee for Economic Development of Australia event on Thursday.
RBA assistant governor Luci Ellis: “Whether the global economy finds itself on a path to a Roaring Twenties or a post-pandemic malaise depends on the choices that many of us make.”Credit:Alex Ellinghausen
Dr Ellis said it was understandable some analysts expected businesses and workers to be more risk-averse due to the pandemic, resulting in slower growth and a less dynamic economy. But she disagreed that a post-global financial crisis-style slump was inevitable.
“I’m not so sure that this will be the outcome, though. Or at least it doesn’t have to be. The context is very different,” she said, adding the financial and business sectors were in better shape in 2021 than during the GFC.
“This time, demand is bouncing back strongly, supported by policy.”
Before the pandemic, business investment and productivity growth were both low. Dr Ellis said these trends had been seen in many advanced economies, prompting concerns among economists. Australia had suffered the same long-term slowing in investment, except for a boost in the mining sector.
“Whether the global economy finds itself on a path to a Roaring Twenties or a post-pandemic malaise depends on the choices that many of us make,” she said.
“These will in turn depend in part on the stories we tell ourselves about the experience and the lessons we learned. And one of the stories we could tell and lessons we should learn is that, actually, people and firms can adapt and have done so.”
She said the shift in demand between goods and services during the pandemic had opened up new industry-specific opportunities for new firms and businesses were typically well-placed to fund these investments. This included a rise in remote working and teleconferencing, though she said this was just one part of the shifts happening.
“One can also see increased online sales, new products and services, new suppliers – and an increased focus on what’s important, sloughing off the inessential,” she said.
Supply disruptions could also result in some “creativity” from firms, she said, while there had been significant advances in medical technology, logistics relating to vaccine roll-outs and data literacy over the past two years.
“Nobody can predict quite what will come from all of that.”
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