Pandemic fails to dent investor confidence
There are two macro factors that support a brighter outlook for Australia in the aftermath of the pandemic, according to the Reserve Bank of Australia, and make it different from the Global Financial Crisis (GFC).
In a speech by Brad Jones, head of the international department at the RBA, titled ‘Uncertainty and Risk Aversion: Before and After the Pandemic’, he said there were substantially differences to the crisis caused by the pandemic and the GFC.
“The speed of the recovery in activity and the labour market in Australia bears little resemblance to past downturns. This should give us hope that less economic scarring will result,” he said.
“A second reason why the path ahead may be different from typical post-crisis recoveries is because many Australian household and business balance sheets are in better shape than before the pandemic. This is a result of the unusual size and composition of the policy response in Australia. The increase in household income during the pandemic is unprecedented as far as past downturns go.”
These factors had led to consumers and businesses gaining confidence about their investment plans and Jones said it could “pick up even more strongly” than the RBA had previously forecast.
“It has been encouraging to see consumer and business confidence bounce back strongly, and fewer Australian firms report economic uncertainty is affecting investment plans compared to earlier in the pandemic,” Jones said.
“A key question here is whether households, having survived the worst of the pandemic in reasonable financial shape, embark on a period of unusually strong (‘revenge’) consumption, supported by their significant savings from last year and higher asset prices. Private investment and employment would likely be stronger in such a scenario, with higher income spurring on stronger consumption and investment in a reinforcing cycle.”
AUTHOR
Laura Dew
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