speech covid, our changing economy and monetary policy philip lowe [ * ] governor committee for economic development of australia annual dinner address sydney – 16 november 2020 thank you very much for the invitation to speak at ceda's annual dinner. after so many webinars and zoom meetings, it is great to be able to be here in person. 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 qe by the rba. none of this was expected at the start of this year. unfortunately, it guarantees that 2020 will be a year that is talked about for decades to come. yet through these difficult times, the underlying strengths of the australian economy and people have been on display. our economy has performed better than many others in challenging circumstances. we have had more success in containing the virus than many other countries. australia's public institutions have worked effectively and constructively together. our public sector balance sheets are strong and have been used to good effect to cushion the shock. our financial institutions have also helped people and businesses manage their mortgages and their debts. and australians across the country have reacted sensibly and worked together to contain the virus. so, even though we have had our challenges and setbacks, we do have a lot to be thankful for. notwithstanding this, a year like the one we are living through will inevitably leave some marks on our economy and on economic policy, including on monetary policy. tonight i would like to talk about some of these. in terms of the economy, i am going to touch on five areas where the pandemic is leaving a mark. the recession and the labour market the first is that it has brought an end to australia's nearly three decade - long run without a recession. this was an impressive record and it is one that will not easily be broken by us or by others. we are now, though, having to adjust to a new reality. the level of output in australia fell by a record 7 per cent in the june quarter and over 2020, we are expecting gdp to decline by around 4 per cent ( graph 1 ). in the rba's central scenario, we are expecting growth of 5 per cent next year and 4 per cent over 2022. these are fast growth rates, but because of the size of the fall in

often better than our upside scenarios as well. as an illustration, in august our central forecast was that the unemployment rate would end 2020 at close to 10 per cent and still be above 7 per cent at the end of 2022 ( graph 1 ). in our upside scenario, the unemployment rate was expected to end 2020 a little lower than 10 per cent, but still be around 7 per cent later this year. thankfully, the actual outcome for the unemployment rate has been much better than this, with the peak now looking to be behind us and the unemployment rate ending 2020 at 6. 6 per cent. graph 1 1 / 7 bis central bankers'speeches it is reasonable to ask : what explains these better - than - expected outcomes? there are 3 factors that i would like to point to. the first is the success that australia has had in containing the virus. that success has meant that the restrictions on activity have been less disruptive than we feared. it has allowed more of us to get back to work sooner and it has reduced some of the economic scarring from the pandemic. as is increasingly clear from experience both here and overseas, the health of the population and the health of the economy are inextricably linked. the second factor is the very significant fiscal policy support in australia, which as measured by the change in the aggregate budget position is almost 15 per cent of gdp ( graph 2 ). most of this support has been delivered by the australian government, but the states and territories have also played a role too. this support has been more substantial than was assumed in august and has made a real difference. it has provided a welcome boost to incomes and jobs and helped front load the recovery by creating incentives for people to bring forward spending. there has also been a positive interaction with the better health outcomes, which have allowed the policy support to gain more traction than would otherwise have been the case. graph 2 the third factor is that australians adapted and innovated. when the virus first came to our shores, many people hunkered down, but as the days wore on, households and businesses adjusted and changed what they do and how they do it. this resilience has helped keep the economy going and kept people in jobs. many firms changed their business models, moved online, used new technologies and reconfigured their supply lines. households adjusted too, with spending patterns changing very significantly. some of the spending that would normally have been done on travel and entertainment has been