ACLF 2021 – After the recession: how should we renew our economies?

so i will now ask our speakers on our panel to um turn on their video and microphone and i will introduce them to you so let's start with i am cozy iron is chief economist and director of prospects group in the equitable growth finance and institutions practice group of the world bank prior to joining the world bank he was assistant director of the research department and deputy chief of the multi multilateral surveillance division in the imf iron is a non-resident senior fellow at the brookings institution research fellow at the center for economic policy research and a research associate at the center for applied macroeconomics here at the anu catherine mann is an international economist whose career has spanned across domestic policy in the usa and global analysis at international organizations research and the private sector most recently catherine was the global chief economist at uh citibank bank from february 2018 to may 2021. prior to that she was chief economist and g20 finance deputy at the oecd from october 2014 to november 2017. has also held positions at brandes university the federal reserve board for governors the white house and the world bank among others she was recently appointed as an external member of the monetary policy committee at the bank of england adam mckissack is the chief economist at the business council of australia adam has responsibility for leading economic policy and analysis work within the business council in this role he works closely with australia's leading chief executives and representatives from their companies to shape public policy and promote economic growth he was formerly a senior executive in the australian treasury and has a breadth of experience advising governments on economic policy issues he has held various positions um including in the treasury and other government agencies covering areas such as preparation of the federal budget macroeconomic forecasting international finance tax structural reform and foreign international investment policy and finally yang yao is a liberal arts chair professor at the china center for economic research and the national school of development at peking new university he currently serves as the director of china's center for economic research and dean of the national school of development and editor of the china center for economic research house journal called china economic quarterly he serves as the chairman of china economic annual meetings and chairman of the federal foundation of modern economics his research interests include economic transition and development in china and he's also a prolific writer for magazines and newspapers including the financial times and project syndicate okay so now let's um start our panel let me start with you katherine so we had you as a similar in a similar session last year and when we last spoke the unemployment rate figure for the us in april 2020 reached 14.7 and 6.65 million people have filed for unemployment the current u.s unemployment rate is 6.3 last year's um atlanta fed gdp now figure suggested output growth of minus 48.5 on an annualized basis and that measure is currently a positive 5.1 and the world bank has shown that the economy's growth rate globally is the fastest it's ever been coming out of a recession so that's quite an economic turnaround but the angst of the economist about the robustness of the recovery is plain to see every time we get a single piece of data do you think that the recovery in the us in some parts of the globe is as fragile as some economist fear uh well renee i think that it's without question the global recovery is fragile there's uh myriad of downside risks i'm going to go through four of them uh first i'm going to talk about differences across economies and of course that's important if we think about the global economic recovery then i'm going to talk a little bit about uh across sectors and the extent to which the recovery is fragile across sectors then we can talk about fiscal and monetary policy and the threat of consolidation and normalization and then finally asset valuations so if we go through those four elements of of potential risks uh it's it's clear that the risks are on the downside uh and so um the potential for downgrades in global growth uh next time the major international institutions uh do their forecasts i think the the risks are definitely on the downside so let's first talk about across economies um incomplete vaccinations i mean it's you know within advanced economies there's incomplete vaccinations but frankly even more importantly uh incomplete vaccinations within the emerging markets uh it's it's in availability vaccinations to deliver it is a challenge of domestic deployment uh for a whole host of reasons emerging markets are really uh not um able to and not participating in the vaccinations that are available now emerging markets on a ppp basis are more than 50 of the global economy so if we have delays in achieving uh vaccinations in emerging markets this is clearly going to have an impact on their capacity to be part of the global recovery and it does represent downside risk overall um of course emerging markets play an incredibly important role in global supply chains uh and this is and we are seeing the the uh fragility of those global supply chains uh as they are uh you know as various ports as various facilities are closed down on account of the vaccination challenges in in many countries we see this in the very soft pmis in many um of the emerging market economies uh for those who are not part of the supply chain directly with on the manufacturing side of course they have very important tourism linkages to the global economy and with incomplete vaccinations and and the shutdowns and border controls uh you know lost tourism is a very uh very important um downside risk continued downside risk for many of the emerging market economies so that's that's a first set of things that show you clearly there's there's fragility in in the global economies uh recovery notwithstanding the numbers that look good uh when it when it was so bad you know numbers can look good um the second issue has to do with covid mutations and the impact that that is having on sectoral recoveries within economies now you mentioned the um atlanta fed's gdp now forecast well about 10 days ago it was 6.7 then it was downgraded to 3.7 and that was even before the most recent job numbers came out uh that are probably going to be a little bit more concerning when we think about prospects in the united states but more broadly um across all uh advanced economies where vaccinations have been uh more uh more widespread uh you know we have a slow pace of of the consumer recovery uh some of it has to do with um you know uh concerns about pro and having precautionary savings but also it has uh you know continued challenges in um services in terms of uh delivering services in terms of services availability and in terms of of the willingness of individuals to go out there and uh really go back to a normal uh strategy so covert mutations in the advanced economies significant issues continuing with regard to recovery of the services sectors and that of course we have to remember in advanced economies in particular services sectors are the principal driver of gdp growth they are the principal employer and so even though manufacturing looks looks much better and people are buying um you know goods these are smaller smaller segments of the economy that has implications for business investment maybe we can talk about that in a little while the third point i wanted to make was with regard to the challenges with regard to fiscal and monetary policy uh either consolidation on the fiscal side potential normalization of monetary policy now of course the underpinnings of these um potential moves on consolidation or normalization have to do with of course concerns about inflation and concerns about debt debt sustainability so there is uh a rumblings um uh in especially in advanced economies about a return to fiscal discipline that now is the time to do this there has been uh you know advances in in recovery especially if you look at the at um the manufacturing sector and so there's this concern about debt sustainability and that now is a good time to engage in fiscal discipline um putting economies on a consolidation path now and there's also of course uh some fiscal cliffs having to do with the ending of furlough programs in some countries and the ending of um pandemic related benefits in other economies and these fiscal cliffs um you know might be beneficial from the standpoint of of fiscal top line but you know to the extent that these have been important supports for consumption um there is a concern about whether or not the rug is being pulled out uh from under a little bit too soon now of course on monetary policy normalization again the concerns are when we look at some of the uh inflation statistics which again coming from a very low base um we have to worry about you know that that the misinterpretation of some of these inflation data uh that would you know over time where the base effects were being um removed from the data some of the energy um energy uh head uh tailwinds to inflation turning into headwinds and a variety of other elements having to do with inflation nevertheless um there is a move towards at least considering um the pathway towards monetary policy normalization and this of course has implications for the interest rates that are at this time very supportive of asset markets so let me turn to that last piece of the puzzle the stretched asset valuations now these asset valuations really are predicated on continued low interest rates and so there's this interplay or an endogenicity between the um interest rate uh paths the policy rate paths and the potential uh asset price volatility now some of those valuations particularly equity markets in the united states seem to be particularly stretched um housing markets uh in many countries are at their all time are at very high valuations and for example the oecd metric of the global house prices it has taken us back to where we were prior to the global financial crisis a concern uh that even though there have been substantial more macro prudential and micro prudential regulations put into place to support uh both to reduce vulnerability in housing markets nevertheless prices are very high and and potentially a concern credit spreads very narrow um and uh you know something like bitcoin for example uh is is another indicator of of the uh degree to which um asset valuations are perhaps a little bit disconnected from from the the state of the uh rail side of the economy if we have a stumble you know in asset prices uh as there's a realization that maybe the real economic fund foundations of say earnings are not quite as uh supportive as as uh the markets currently have been uh pricing in then of course we have wealth effects we have business investment effects we have some uncertainty effects that turbulence uh does have uh implications for um the global economy going forward as well so a lot of risks out there okay well let's turn to another part of the world let's turn to china so um yeah i would like to ask you um so china grew by 2.3 last year and growth is forecast to rebound to 8.5 percent this year which is an upward revision of the forecast for growth in china from last year so are you more optimistic or less optimistic than catherine on her view of the economic fragilities that we're facing well actually i'm more optimistic than catherine um well in this year china's growth has slowed down uh you know in many years uh china actually elected behind the united states in terms of uh growth rate right and that's going to last for several quarters i i think but in the media range and the longer range i think uh china and also the world is going to have a brighter future than catherine has just described i think let me focus on three new technologies that i believe are going to drive the chinese economy and also the world economy into a new stage of high growth when i say high growth of course it's not that kind of a double-digit growth but a reasonable and respect uh respect for a growth rates so the first uh new technology is ai i mean can you imagine only like four or five years ago when alpha gold was released people were so surprised by ai technology but today we are using ai almost every minute right ai has become more sophisticated but also uh much cheaper much cheaper than before right uh so furthermore in china uh we have a ward called uh malone which means digital uh workers right so when you go to those so-called high-tech companies you see a lot of people working out there this is so labor intensive right that also means ai technology have become so widely used and become cheaper right so that's going to drive a lot of new industries probably we we do not notice them but they are coming into our daily life particularly after the pandemic right yeah so applications are booming right for example in japan people were not used to use like internet you know mobile technic communication technologies but after pandemic japanese people are beginning to use all sorts of new technologies so this is one the second is the solar power this is quite related to the climate agenda we know that climate agenda has been on the table for 30 years right but over the last 30 years most of time we were just talking talking about climate change but over the last several years the agenda is being turned into action that's very important right so globally industrial countries are pushing for a unified carbon price globally and european countries are discussing to place border tax on imports right you know in the short run probably that's not going to be good for economic growth worldwide but in the longer term i think it is going to be a huge driver for solar power technology to be applied worldwide right come to china you can see china is the largest carbon emitter in the world but among china's carbon emission uh firepower accounts for eighty percent right that that's a lot because china burns a lot of coal and china has announced that you know by 2030 china is going to flatten its covering mission and by 2060 china is going to neutralize the cabin emission those are two banking tasks china has to change its energy mix in order to achieve those two goals but luckily china is the biggest solar power producer china produces 75 percent of solar power panel components and has one third of the world solar power installation so china has a huge manufacturing capacity in solar power here i also want to raise a question you know economist thoughts about government policy uh governor supports to industry you know solar power was introduced in china 20 years ago then in 2006 the government began to heavily subsidize solar power industry by that time mostly economists including myself criticize the government seeing that no no you should not do this but 15 years after we see the results right china has become the largest producer uh the solar pan panel equipment and the largest uh a solar power producer right so that's the second area the third area is electrical cars okay you know this is also consistent with the climate agenda and many countries have allowed the plans to fizz out the petrol cars right china has not allowed a deadline to freeze out the petrol cars but in china electric cars are moving so fast also thanks to government policy uh i think there is starting from 2010 the government began to subsidize elect 2014 and the government began to subsidize electric cars but today china has become the largest producer of electric cars so electric cars are much simpler than petrol cars right um but it uses a lot of new technologies particularly in batteries and ai i mean in a sense you can think about the electric cars as a combination of batteries in the ai and luckily china uh need these in both uh areas right uh you know china's battery companies are leading the world and in ai areas china is also one of the world's leaders but not just in china u.s and also europe are doing the same but probably in the coming decades china is going to produce most of the low end and the median level electric cars of course china also produce a higher end electric cost but on the higher end i think europe and the united states are going to produce most of those more expensive electric cars so that's a good combination um people of course worry about you know you talk about all those new technologies that in the last several decades by economist america new technologies that have not contributed to economic growth because probably many technologies just a replacement of all the technologies so you don't see real growth but in today's world i think those new technologies are going to create a new opportunities and uh they are going to provide expensive uh margins of return growth right now ai does not just replace like a human mind the human hands actually creates a lot of new businesses all right solar power of course most of it is going to replace the firepower but it is also going to stimulate inventions of new technologies electric cars probably are going to be the same right uh nasa and let me put forward one suggestion and i think the current climate agenda uh obviously in the short run it's not going to be friendly to [Music] countries in africa and south asia because those countries cannot jump into the solar power stage right so if the world is going to have a unified carbon price and european countries set up carbon tax at the border then those developing countries are going to be hurt i think that at this juncture we should not only talk about you know unified carbon tax or carbon price but also some concrete plan to help those countries right so probably the world needs a new infrastructure building drive for african and the south eastern driving countries and in that china can contribute quite a lot okay let me stop here thank you okay now i'll turn to i am let me first ask you your views about near-term growth prospects in 2021 2022. so the world bank has shown in its global economic prospects report that you're involved in producing that the global recovery is the fastest that it's ever been coming out of recession over the past 80 years i want to dig a little deeper into this seemingly good news story because other evidence suggests that the pandemic has inflicted tremendous damage on particularly on emerging and developing countries where unemployment rates are high investment has declined and the education of the world's children has been interrupted particularly in countries where online is not an option poverty has increased in the first time in a generation so the strong global growth that we're seeing seems to me to be an artifact of the growth occurring in the world's largest economies of the us and china so do you think the economic spillovers from the us and china to the rest of the world will be enough to support growth in low-income countries well thank you ronette thank you uh indeed we are expecting uh road very high in fact it could be the strongest uh most recession pace in terms of global growth we have seen over the past 80 years and the big observation is that a substantial fraction of this growth is coming from advanced economies and a few emerging markets developing economies uh the united states we are expecting growth anywhere between six and a half to six point eight percent uh in china uh growth is going to probably exceed eight percent but when you look at other emerging market developed economies we have a much more subdued growth forecast less than four and a half percent uh one important point about the current global recovery it's all about those countries that have access to vaccines and those that do not have access to vaccines and there there is a huge difference between advanced economies they are delivering record growth rates coming out of a recession and those uh low-income countries uh middle-income countries that are still struggling in terms of getting the vaccines and distributing them uh unless the global community addresses this problem of uh the the unequal distribution of vaccines it's going to be difficult to overcome the pandemic and it's going to be basically impossible to have a evenly distributed global recovery now with respect to u.s and china delivering strong roads and having you know very large spillovers of course when you have these two economies um having this type of growth outcomes uh that's that's a reason uh to celebrate but unfortunately uh their strong growth performance will not be enough would drive a robust recovery in emerging developing economies and especially low-income countries so when you look at low-income countries most of them have the underlying structural problems this year we are expecting in these economies growth to be around a bit below 3 percent uh and that's you know a decade-long uh lowest growth rate in these economies now uh per capita growth numbers will be essentially zero in this year in low-income countries about two-thirds of them are affected by fragility conflict and violence so when you focus on those countries the outlook in this fragile and conflict states is particularly dire now uh when you look at the vaccination numbers uh things look really uh very very disappointing less than two percent of the population in low-income countries has received at least one dose of vaccine as of late august just 120 of the share of the population vaccinated in the world so um really this is something global community as i mentioned needs to pay attention to so what happened with the pandemic there were existing vulnerabilities and now these vulnerabilities in a sense were magnified such as fragility extreme poverty weak administrative capacity elevated debt levels disasters of course uh becoming more frequent because of the climate change and all of them together make the you know these economies less resilient and and having basically accumulating problems and and they are seeing the compounded effects of those problems in many of these economies another big issue is the elevated debt levels and uh global community try to address this problem setting up the of course that suspension initiative uh that initiative is going to expire at the end of the year there is now a common framework to basically restructure the debt of some of these economies and some countries already have been going through this uh process so all in all uh there's a global recovery underway highly uneven how this global recovery is going to proceed is going to depend on on the health front whether we can get ahead of the pandemic and of course how the policy makers is going to set up their policies uh as we basically start this uh post pandemic recovery but let me stop kid thank you okay let me now turn to adam we'll ask some questions about australia so apart from the short recession that australia experienced last year australia has had a remarkable run of positive growth since 1991 including positive growth in the most recent quarter despite this sustained positive growth you are the author of a recent business council discussion paper called living on borrowed time australia's economic future the title of the report doesn't have a positive tone to it so why did the business council write this report that's right and i think certainly the report is written against the backdrop that we have done well um we've done very well in the last few decades and we have a lot of potential but we can do better is is the key message of living on borrowed time we've actually had now five intergenerational reports over the last 20 years we've all sort of told us that if we don't sort of do something about our productivity performance growth and living standards will slow in australia and it's actually what we're seeing it's it's coming through quite clearly in the data already um so we've been out talking to the community about about uh the issues we've got on the paper people are really surprised to learn that the last decade was our worst decade for growth and living standards in 60 years so i think we have this sort of creeping issues coming through in the australian economy that people aren't really seeing um and i think you know we're thinking about the sort of issues the panelists have raised so far there are some big forces of change coming our way that are really going to sort of accentuate uh a lot of the sort of underlying issues we're facing in the australian economy obviously with our starting point now is a very different fiscal position so we now have the highest uh government debt since the second world war so that changes the whole of the whole fiscal picture for australia uh the global picture as we had just heard is very very different um there's a lot more instability both economic and i think geopolitical but at the same time a lot of opportunity for australia so we need to think about where we sit in the world we're seeing technological change accelerate through the cover period as young now talked about earlier and sort of how do we sit in that sort of changing uh technological uh world and you know what does that mean for our business models etc uh and obviously the last one is sort of the climate change uh challenge so most of our major training partners now are committing uh to net zero by mid-century so so how do we respond to that so i think there's a lot of forces that are bringing some longer-term issues to a head and as we sort of look to the recovery from covered phase we sort of need to think about how that how it's going to impact so what what we've sort of done in this paper and we've gone out to the community across australia we're talking to people right across the country and we're sort of not giving them a menu of here's what you have to do we talk about six big shifts we need to think about in this country as we sort of look at the sort of code recovery uh challenge the first of these is really about sort of how we transform our industry structure how do we ensure we have a diverse and resilient industrial base so we're very good at a few things in australia but as we see all these forces have changed i think the types of things we invest in now won't give us wealth in the future so we're good at mining and agriculture but how do we sort of put put a few more eggs in our industrial basket the second one is really just having a more proactive uh response to climate change uh having some national goals and actually taking opportunities so australia could actually be a leader in clean energy so how do we actually turn this challenge of climate change uh into an opportunity uh for australia which we know it's there i think you know an additional one is is our skills and education system so how do we lift our international competitiveness so one is really about we've seen something of a decline in our performance and education standards here in australia how do we lift that up and become more competitive uh we have a challenge around the fiscal uh as i mentioned so how's that you know do we have a tax system that is going to deliver us uh sustainable revenues will help pay down debt as well as deliver other services needed of an ancient population so there's a whole question around and that needs to be a sort of a discussion across generation it's not just a commonwealth government issue it's also a state government issue and i think the openness issue is very important too so where does where does australia want to sit in the world uh moving forward and obviously in the past generated a lot of our wealth from our connections to the global economy as a small open economy that is the best place for us to be so but where do we sort of position ourselves and take advantage of some of the opportunities coming through ongoing growth in asia and so on i think the last shift we talked about it's really just making sure that the growth is even across the economy and that we're sort of addressing areas of uh entrenched disadvantage uh people aren't held back by gender uh they're not held back by where they live in australia so sort of picking up that regional agenda so it's it's a sort of fairly ambitious uh conversation we're trying to help with the country currently um but we're trying to retest you know what is what is the sort of appetite for change and how does the country want to respond across those six uh big areas i think we're all things we can maybe delve into a bit more but i'll sort of leave it there as a summary great thank you so i'll just remind the audience that the q a will start soon so if you would like to put your questions in the q a box um in the meantime i've got many questions to go through so i'll now turn back to katherine other notable pandemic trends with consequences for economic renewal other behavior of savings and investment in the economy so some classes of consumers have a huge savings to the pandemic the savings of americans are roughly one trillion dollars more than what they were a year ago and we have significant infrastructure investment stimulus programs in place so what do we need to do to incentivize businesses to invest as and consumers to spend in a way that leads to sustained economic renewal so thanks renee um this is a challenge um it's a challenge uh on the consumer side i think we have to recognize that the distribution of savings in other words the people who have been able to work from home continued on with their with their earnings uh but yet have not had been able to spend on the things that they usually spend on restaurants entertainment travel um that's not the whole population um and in fact those are the people with the with the shall we say lowest marginal propensity to consume so um how that savings gets deployed uh is i think an important question going forward it could be a source of uh continued robust uh growth and on the consumer side that would be supportive as um as the fiscal policy gets a guest free goes into retreat but i think we i think we don't know that i don't i think we don't know that is very dependent on on the coveted mutations and the availability for example of of cross-border travel um i think we have to remember um that for those who have not been in a position of having excess savings or you know more savings because they haven't been able to go out and spend it the people who who spend all of their earnings they will be going back to employment but is it employment that actually represents a supportive uh consumer demand you know some of these jobs are not as uh don't pay as much as a living wage um although there have been some changes at the very low end in terms of um higher wage uh uh bonuses and so forth for taking a job but nevertheless i think we i think we have to be very uh we have to be concerned about the support for consumption going forward because of the extent to which uh u.s fiscal policy in particular was designed to have a very very large uh consumer uh boost to it and that of course is is being sort of taken off the table with regard uh with as as pandemic benefits roll off on the investment side you know i i'm gonna join uh with uh yao and and with ayan talking about the role of climate in terms of um the key incentive for business investment yes we have business investment in information technology in order to deal with all of the changes and structure having to do with the pandemic yes we have business investment having to do with uh supply chain reorientation uh to you know make production in more locations this is going to have some investment associated with it but if we really want to have something durable and large with and consistent with with regard to business investment we really do have to be talking about a adorable and global commitment to a change in the relative price of carbon whether we do that directly through a carbon tax within a market cap and trade or whether we do that with regard to a border tax adjustment whether we do that with regard to taking away a lot of subsidies that exist for fossil fuels because they're they're a lot that are there um you know whether we do that with regard to carbon regulations whether we do that through for example the total climate finance disclosure that central banks and regulators have put on to the finance the private financial system to disclose uh what is uh in the um the carbon intensity of their portfolios and therefore sort of incentivize carbon understanding carbon intensity at the firm level um that would create this incentive for having a lower uh carbon lower carbon intensity all of that is necessary in order to create incentives for the private sector and the private financial sector to move forward with a change in business investment that's necessary to to reach these carbon goals the challenge i mean that's a big challenge to be of right but an even uh an even bigger challenge and and something that that yao um did not really address which is it's one thing to innovate it's another thing to adopt um you can have lots of innovation in climate space or in some of these other spaces but the the record of adoption is something that we can look through i t itself back in the 1990s um there are firms in every sector that are the innovators and are the adopters of existing innovations but then there are a lot of firms a very very big tale of firms that do not adopt innovations that are available they are off the shelf they don't adopt them it could because they're too expensive it could be because you know the head manager doesn't want to do it but these are critical questions for business investment more broadly to have the type of beneficial change that will be supportive of potential output productivity growth uh going forward so i just like to thank all of our panelists today for their really fantastic insights um it's been a great way to start the conference i still have two pages of questions that i didn't get to ask so there's still a lot of ground to be covered so everyone at home please join me in thanking catherine i am young and adam for their wonderful presentation and if you clap at home we can't hear you but it means that you'll have really good karma for the rest of the day at the conference so thank you very much

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Keywords: ANU, The ANU, Education, Australia, Research, Policy, Academic, University, The Australian National University, Higher education, degree, study, university student

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Length: 41min 28sec (2488 seconds)

Published: Tue Sep 14 2021