RBA Governor Philip Lowe: Australian economy could rebound rapidly on further good health news

Dr Lowe told the CEDA Annual Dinner that recent economic data had been better than expected and the easing of restrictions had “lifted spirits”, notwithstanding the emergence of new virus cases in South Australia.

“There is a lot of stimulus in the system, balance sheets are generally in good shape and governments are providing substantial incentives for firms to invest and employ people,” he said.

“So if we do get further good news on the health front, we could have a rapid rebound.”

The RBA Governor said the economic downturn had ended Australia's nearly three decade-long run without a recession, with Australia’s GDP expected to decline by about 4 per cent in 2020.

He noted that the downturn had taken a heavy toll on the labour market and was highly likely to lead to higher unemployment rates for longer.

Dr Lowe said the pandemic had also had an impact on population growth, property markets, digitisation in the economy and attitudes to risk among households and businesses.

“While it is not possible to be definitive here, I expect that for a time, people will be more cautious in their borrowing and spending decisions,” he said.

“At the same time though, it is important that we guard against becoming too risk averse.”

Dr Lowe noted that some degree of risk-taking would be necessary for businesses to seize opportunities and continue to grow.

On population, the central bank governor highlighted the sharp decline in population growth since Australia closed its borders at the start of the pandemic.

“This will be the slowest rate of increase since 1916, when many Australians left our shores to fight in the First World War,” he said.

“Looking to the future, it remains hard to predict when the borders will open again and when they do, what the rate of new arrivals will be.

“If population growth is to be noticeably slower in a post-COVID world, the trajectory for our economy will look different too.”

Despite this, Dr Lowe said the Australian economy had performed better than many others amid the biggest economic downturn in nearly a century.

“2020 has been a year like no other and one we will never forget – a global pandemic, the closure of our borders, the biggest economic downturn in nearly a century, a very large budget deficit, interest rates down to zero and quantitative easing by the RBA,” he said.

“Yet through these difficult times, the underlying strengths of the Australian economy and people have been on display.”