indeed, services were already showing a declining trend before the latest round of restrictions : the services pmi fell from 54. 7 in july to 46. 9 in october. and while manufacturing has so far remained relatively resilient, there is a risk of the recovery in manufacturing also slowing once order backlogs are run down and industrial output becomes better aligned with demand. in this situation, the key challenge for policymakers will be to bridge the gap until vaccination is well advanced and the recovery can build its own momentum. the strength of the rebound in the third quarter suggests that the initial policy response was effective and the capacity of the economy to recover is still in place. but it will require very careful policy management to ensure that this remains the case. above all, we must ensure that this exceptional downturn remains just that – exceptional – and does not turn into a more conventional recession that feeds on itself. even if this second wave of the virus proves to be less intense than the first, it poses no less danger to the economy. 3 / 6 bis central bankers'speeches in particular, if the public no longer sees the pandemic as a one - off event, we could see more lasting changes in behaviour than during the first wave. households could become more fearful about the future and increase their precautionary saving. firms that have survived up to now by increasing borrowing could decide that remaining open no longer makes business sense. this could trigger a “ firm exit multiplier ”, where the closure of businesses faced with health restrictions cuts demand for complementary businesses, in turn causing those firms to reduce their output. 9 if that were to happen, the recession could percolate through the economy to sectors not directly affected by the pandemic – and potentially trigger a feedback loop between the real economy and the financial sector. banks might start tightening credit standards in the belief that corporate creditworthiness is deteriorating, leading to firms becoming less willing or able to borrow funds, credit growth slowing and banks ’ risk perceptions rising further. the ecb ’ s bank lending survey is already signalling a possible tightening in the months to come. we are also seeing indications that small and medium - sized firms are expecting their access to finance to deteriorate. a continued, powerful and targeted policy response is therefore vital to protect the economy, at least until the health emergency passes. concerns about “ zombification ” or impeding creative destruction are misplaced, especially if a vaccine is now in sight

is more difficult to measure. whatever the reason, the dynamics of labour markets are critical to the future path of inflation. it is possible that wage outcomes will remain very subdued even in countries with strong labour markets. if this turns out to be the case, then it is likely that inflation rates will also continue to be very low and monetary policy very accommodative. alternatively, what we might be witnessing is just a slightly longer lag in the normal relationship between employment growth and wages. if this is the case, a pick - up in wage growth and inflation may not be too far away. here, the united states is a test case of sorts given that its recovery is most advanced. recently, there have been some signs of a pick - up in inflation there and it will be worth watching what happens quite closely over the next few months. for us, here in australia, the continuing low wages growth means that cpi inflation is also likely to remain relatively low. while there is some upward pressure on the retail prices of imported goods as a result of the depreciation, this pressure is being muted by stronger competition following the entry of a number of overseas - based retailers into the australian market. as the reserve bank has indicated for some time, this low inflation outlook provides scope for easier monetary policy should that be appropriate in supporting demand growth in the economy. an important factor here will be whether the growth in aggregate demand continues to be sufficient to accommodate the growth in our labour force. so, this brings me to the end of my remarks. i wish you the best of success for your national congress. i hope that in another six years'time we can still be talking with some satisfaction about the resilience and growth in the australian economy. and i suspect that the issues of productivity growth, the balance in the housing market and the inflation dynamics will be just as relevant as they are today, and as they were in 2010. thank you and i would be happy to answer any questions. bis central bankers ’ speeches graph 1 graph 2 bis central bankers ’ speeches graph 3 graph 4 bis central bankers ’ speeches graph 5 graph 6 bis central bankers ’ speeches graph 7 graph 8 bis central bankers ’ speeches graph 9 graph 10 bis central bankers ’ speeches graph 11 bis central bankers ’ speeches