AFTF 2021: the great reopening is here

The great reopening is here.

Speaking at the 2021 ANZ Finance & Treasury Forum, ANZ Chief Economist Richard Yetsenga said strength in the global economy would be further bolstered as hard borders fall – while warning inflation looms at the next challenge for business.

“On a global basis, there's a clear shift towards opening after COVID, this time with high vaccination rates,” he said. “This is occurring against what is already a very strong economic backdrop”.

“Key indicators for most economies suggest they've already passed through the recovery phase of the cycle.”

Yetsenga said global gross domestic product levels, production and exports had all returned to pre-pandemic levels, along with unemployment in many jurisdictions - although “there is a bit more work to do on improving measures of labour under-utilisation”.

A full reopening would not occur without “some logistical challenges”, Yetsenga warned, but said it would “help reduce any caution lingering with consumers and businesses”.

“And you can see a bit of that now,” he said.

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Yetsenga said elevated inflation would be a challenge in the outlook, and cast doubt on the idea the issue was transitory.

“The view that inflation is largely transitory rests on the idea the main inflation challenges are just kinks in the system,” he said. “I don't agree.”

“This is important because we haven't even had a partially synchronised global inflation cycle for quite some time.”

Yetsenga said the idea inflation was transitionary did not account for the impact of the wealth of policy stimulus delivered through COVID, not for the practical implications of reopening.

And finally, he said, “COVID is not the fundamental problem with global trade” – the issues run deeper than that, and the fix is not as simple as the end to the pandemic.

A world of shifting inflation would be a “different environment for business”, Yetsenga told the forum. Low wage growth would continue to grow as an issue.

“In my view, holding on to staff is only likely to continue to grow as a challenge,” he said. “It also comes with higher uncertainty.”

“Like it or not, forecasting the timing of shifts in the inflation regime is challenging.”

Yetsenga also touched on the deflationary forces of demographics and technology, but warned these would not entirely solve the problem.