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The Reserve Bank believes the recession could be over

Reserve Bank deputy governor Guy Debelle told a Senate estimates hearing on Tuesday that the RBA believes the country has pulled itself out of the recession.

“Our best guess is it looks like the September quarter for the country recorded positive growth rather than slightly negative,” Dr Debelle told the hearing.

“As best as we can tell, the growth elsewhere in the country was more than the drag from Victoria, and possibly the drag from Victoria was a little less than what we guessed back in August.”

When asked about wage growth, Dr Debelle explained that “the main objective is to get people back into employment”.

The RBA board will meet next Tuesday, with many believing the cash rate will be cut 0.15 points to 0.1 per cent. The following day, they will release their quarterly statement on monetary policy.

RBA Assistant Governor (Financial System), Michele Bullock, was more measured in her Tuesday address at an Ayr Chamber of Commerce event.

“The large contraction in economic activity as a result of the health crisis has had a substantial impact on many businesses and households,” she said.

“While a range of income support policies and actions by lenders and landlords have so far provided support, some of these measures will soon come to an end and there is uncertainty about others.

“With a very uncertain economic recovery, this raises issues about the resilience of businesses and households and ultimately about the credit quality of banks’ assets.”

She noted that both banks and the majority of businesses are well-placed to recover from this recession.

“Prior to the pandemic around half of businesses had only enough cash on hand to pay one month’s expenses and around one quarter had enough cash to cover more than three months,” she explained.

“By October, more than 60 per cent of businesses had enough cash on hand to cover three or more months of expenses. This will be helpful during the recovery.

“Furthermore, the vast majority of companies went into the pandemic and resulting recession reasonably well placed in terms of debt and their ability to service it.

“Debt-to-equity ratios are generally lower than where they were a decade ago. And earnings for most companies easily cover their interest payments.”

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