Ex-RBA Board Member Warns Covid Impact Will Linger in Economy

Australia will likely find Covid-19 has a lingering effect on the economy and the sheer scale of stimulus means it will probably be a couple of years before it’s clear how much has changed, former Reserve Bank board member Heather Ridout said.

“People are operating differently, companies are having to operate differently and it’s going to take a long time before supply chains get back to what they were before,” Ridout said in an interview with Bloomberg News Wednesday. “There will be a new normal and I think worrying about pandemics and all of this will become part of the new normal.”

A productivity boost will linger from people opting to keep using the technological advances forced by the pandemic, she said. These range from online meetings instead of flying interstate and tele-medicine replacing visits to the doctor, while trends like online shopping have been sharply accelerated.

Australia executed one of the largest stimulus plans in the developed world as the government distributed hundreds of billions to support the economy. The central bank meantime took interest rates down to near zero and introduced yield curve control to lower borrowing costs, while undertaking quantitative easing to keep a lid on the currency.

“For business at the moment there’s so much stimulus around,” said Ridout, who currently sits on the boards of the Australian Securities Exchange and Sims Metal Management and is a former chair at AustralianSuper.

She notes that, as in the aftermath of the 2008 global financial crisis, China’s recovery is helping Australia emerge from the pandemic. It’s an irony because ties between Australia and its largest trading partner have deteriorated over the past year.

“China keeps giving to Australia even though they hate us,” she said with a laugh. “This is really important and hugely valuable for us.”

Ridout is fretting about the slow pace of Australia’s vaccine rollout and says it could see international borders closed for two years or even longer. It could also see further snap lockdowns.

“We’ve got to get the borders open, people have got to get vaccinated, they’ve got to have the confidence to get on planes. People who are vaccinated should be able to come here,” she said.

Additional comments from the interview with Ridout
  • “The U.S. looks very strong and going to get stronger. There are probably a few headwinds for risky assets. Bond price changes and interest-rate market changes. So I think there’s a bit of rotation going on from growth into value a bit.”
  • “The attitude of the Fed is really quite extraordinary. They’ve sort of dropped the pre-emptive strike, and it’s like we’re going to see the data before we do anything. They’re clearly not that worried about inflation.”
  • “I’m quite upbeat about the U.S..” “I think consumers have got enough firepower to keep the thing moving for a year or two.”
  • “Climate change is a huge issue that’s been accelerated by the pandemic. Investors are still well ahead on this. It’s Blackrock and Blackstone and Vanguard and these people that are demanding companies get themselves in order.”
  • “The RBA’s positioning has been very good and the focus on unemployment and wages is right. They were always very shy about putting a number on the NAIRU. It’s clearly come down. Trying to get wages growth going is key because that feeds into inflation. We haven’t been able to do that for quite a long time.”
  • “The RBA is in a place I suspect they never expected to be. They’ve been quite cautious in the way they’ve gone about it, but they’ve gone about it. They have an objective and they’re doing it.”
  • “The longer we’re closed up, the more insular and provincial Australia will become. It used to be like that. Then we were blasted into the rest of the world and we embraced it. But Australians, especially with poor, insular leadership could easily go back into a place that’s no good.”

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