Here are some of the questions, and responses from our guest panellists from our ‘Data Science in the News’ Webinar #5 on Friday, 22 May, 2020
- Q: In order to balance the national interests, from one side, and respect the free trade agreements, from another side, the governments in most cases choose to restrict the exports following the protectionism policy (as you rightly mentioned), despite the advice from international community (eg. WTO, IMF, IFPRI) that call for free trade.
A from Pascalis Raimondos: The Bretton Woods institutions that govern our global trade – here, the WTO – do allow countries to use unconventional measures in the case of national security and health issues. While export restraints are not permitted under WTO rules, the countries that have used it now with regards to medical products have done nothing wrong with respect to the rules. However, how long you keep the restraint is up for discussion. China restraint its exports for some weeks but then reopened its export supply of medical products.
More in general though, the “American First” trade policy than now has become “China first” and “Russia First” is the main danger for the stability of the global trade and thus for the welfare of all of us. I tend to believe that in crisis situations humans become less self-centred and more willing to cooperate and thus I hope that this pandemic will bring people closer together. I quote Jean Tirole’s (2014 Nobel Laureate) optimistic message: “Wars leave their mark on society, whether fought against fellow citizens, foreigners or diseases. Social science research shows that war reduces individualistic tendencies and increases empathy. Individuals behave in a more cooperative and altruistic manner; they are more inclined to join social groups. …. A health war against Covid-19 has the advantage that this group extends to all of humanity and there is no “out-group” other than the virus…. If this crisis exhibits the same gap-bridging pattern between compatriots and across countries, this could be good news, given the recent trend towards populism, nationalism, ethnic and religious intolerance.”
- Q: Should Australia implement “protectionist” policies regarding the manufacturing of medical equipment? Does this crisis prove that focussing too much on our competitive advantage can be detrimental?
A from Allan Layton: Regarding the second question, I’m not sure about that but it will not surprise me if a number of countries – Australia included – may now be reconsidering the appropriateness of their existing supply chains for a range of products considered important for national security; similarly for their foreign investment policy.
- Q: A key to the recovery will be the extent to which future lockdowns occur (for example following a second outbreak or some level of lockdown required to keep a lid on further outbreaks – such as strict boarder controls). Has the panel done any thinking on what the future might hold in this regard?
A from Allan Layton: My personal view is that we should now be done with blanket lockdowns. Any “second wave” should be handled with targeted isolation of affected groups.
- Q: How do you evaluate the current China’s threat on its bilateral trade with Australia in the SR and LR?
A from Pascalis Raimondos: what happens in diplomacy does not mean that will survive in the long run and will have an effect on long run policies. I have seen very little evidence that China wants to be come less global. Their growth depends on the global economy. However, being a large power in trade, they do have the power to drop Australia and pick up another country to trade with. Australia, being a small open economy, does not have that luxury.
- Q: Pascalis said there is little or no capital destruction. Yes. But, multinational firms are pulling out of China. Will China likely be decoupled from USA, Euro and Rest of world? If this does happen, how big the impact will be on the supply chain? Will there be a new order in world trade, for better or worse?
A from Pascalis Raimondos: MNEs move in and out from many countries all the time. Moving out of China and into to Vietnam or India is not a bad thing and happens continuously. This pandemic may make firms to move out of China if all their “eggs were in one basket” and that will be good – geographic diversification will be good in any way.
- Q: Would do you see as the economic impact if there is a second wave of covid-19? Would that be worse then opening to early?
A from Allan Layton: My personal view is that we should now be done with blanket lockdowns. Any “second wave” should be handled with targeted isolation of affected groups. I don’t think Australian authorities could have or should have waited any longer to begin easing restrictions.
- Q: Do you think the inflation will happened in Australia?
A from Allan Layton: No, at least not within say the next couple of years. During that period I think inflation will remain under 3%.
- Q: Equities would seem to still (in general) be overpriced given the magnitude of a probable deep global recession. Do the panellists have any views on that front?
A from Allan Layton: I’m still expecting a second major correction in equities. The full extent of the drop I believe will be between 40% – 45% from local peak to bottom. We’re not there yet.
- Q: Re: education/research, there’s talk the sector hasn’t received sufficient support – and will be damaged for decades to come – especially as it’s already had billions in government funding slashed over recent years. Given the importance of this sector for Australia’s future prosperity, and in crises like this (where experts/research have been critical to informing response), are we doing enough (and relative to other countries) and what else should be done? Otherwise, aren’t we risking future wealth-generating potential as AU’s 3rd biggest export + a key developer of human capital critical for productivity & new knowledge as a foundation for innovation, entrepreneurship +
A from Pascalis Raimondos: Education has a public good component – it creates knowledge and it improves the human capital we all need to keep our economy growing. A better balance between public and private expenditure may be needed in Australia. Australia is one of the very few OECD countries were the private part of education is bigger than the public part (see https://data.oecd.org/eduresource/spending-on-tertiary-education.htm)
- Q: Was the economy, with usual credit/business cycles, already (pre COVID-19) heading for a downturn (being highly leveraged with debt & arguably inflated asset prices (e.g., property (amongst highest in OECD), shares (P:E ratios very high) & the Reserve had already been slashing interest rates (so there’s not much room left for that lever with monetary policy).
A from Allan Layton: I agree that the Australian economy was not in the best of shape in the immediate period pre-Covid19.
- Q: The Spanish Flu Pandemic went through 3 waves from 1918 to 1920. This is the first wave of Covid19 and the government responded hard and quick with the economic stimulus package. What would be the economic response when the second wave or third wave occur?
A from Allan Layton: I don’t think the government fiscal policy response will be, nor can be, anything like the current response.
- Q: Will we be heading to negative interest rates? Will banks, with their exposure to inflated asset prices & stressed borrowers, have any access to depositors funds (e.g., there was some discussion of & concern about bail-ins / or making depositors bank shareholders pre-COVID-19)?
A from Allan Layton: I don’t believe any of those things are likely, certainly not imminent.
- Q: Speakers have talked about tweaking JobKeeper…any ideas about how?
A from Allan Layton: Beyond what Danielle said in the Webinar about better recipient targeting, I think the quantum may also need to be tapered down over time. We have also now just learned yesterday that the original cost estimate was a whopping $60billion too much (revised down from $130b to $70b)!
- Q: Assuming that the shift of people working from home persists post restrictions being lifted, would you expect that to be a net positive or negative to the ability to recover quickly?
A from Allan Layton: Not really sure about this one.
- Q: Could that shape be a W? What impact would that have?
A from Allan Layton: Could be. It has happened before, but I’d prefer a U of course if we can’t have the V.
- Q: Housing prices are forecast to fall – around 11-32% depending on the COVID-19 recovery scenario. Is it appropriate for Gov to try to protect this sector (which is arguably a bubble)? According to research by the Australian Housing and Urban Research Institute (AHURI) with Swinburne, younger people are increasingly NOT going to be able to afford houses AND one reason is due to “The financialisation of housing is an international factor…where housing is treated as a commodity to be invested in rather than a home, meaning more and more money flows into housing but WITHOUT any necessary improvement in housing supply or quality,”. Q: So has the financialisation of houses (& resultant high prices for buyers & renters) hindered Australia’s value creation opportunities – e.g. by diverting money / credit away from BETTER value creation opportunities (e.g., investment in new businesses / innovation etc.)?
A from Allan Layton: In brief, my view would be that the housing sector should not be protected from any price falls and that, yes, Australia’s policies in general over many many decades have tended to encourage over investment in housing/apartment stock compared with other OECD countries.
- Q: Could it be argued that the current job keeper payments keeps people employed in unproductive sectors? e.g., stopping people transitioning into new sectors like delivery services
A from Allan Layton: I don’t think so. Whilst not co-ordinated as in the GFC, most OECD countries’ governments have nonetheless reacted in quite similar ways to the threat.
- Q: After the GFC the global recovery was based on a globally coordinated fiscal/monetary policy. This is absent so far after COVID-19. Will this affect/slowdown global recovery?
A from Pascalis Raimondos: Correct. I do think that we will see the same happening again. This has already is on the table in EU and even if there are disagreements the issues is discussed. I am hopeful that the same will happen in the 2021 G7-G20 meetings.