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2021 OECD Economic Surveys: Australia 2021

image of OECD Economic Surveys: Australia 2021

The pandemic recession in 2020 was milder than in most other OECD countries, but recent outbreaks have prompted the country to begin transitioning from a zero tolerance to a containment approach to the virus. As the recovery becomes more firmly entrenched, public policy must focus on setting the conditions for another prolonged period of strong and well-distributed growth in living standards. Recent efforts to reduce regulatory, administrative and financial barriers for young high potential firms should continue. At the same time, the resilience of the economy to future economic shocks can be supported by rethinking institutional frameworks related to fiscal and monetary policy, ensuring the social safety net is adequate and that the financial sector supports household financial resilience. Australia is uniquely vulnerable to climate change, but it is also uniquely placed to benefit economically from global decarbonisation due to its natural endowments (e.g. wind, sun, ocean access) and strong human capital to form the basis of innovation in carbon abatement technologies. A coherent and coordinated national strategy that defines clear goals and corresponding policy settings for achieving the government’s emission reduction objectives will be critical.

SPECIAL FEATURE: THE ROLE OF THE FINANCIAL SECTOR IN SUPPORTING A SUSTAINABLE AND INCLUSIVE RECOVERY

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The role of the financial sector in supporting a sustainable and inclusive recovery

Australia’s financial sector entered the COVID-19 crisis in a strong position, enabling it to play a key role in cushioning the pandemic’s impact. Once the economy reopens, policymakers will turn their focus to securing a robust, sustainable and inclusive recovery. However, low interest rates are boosting house prices and demand for credit in a banking sector that is already highly exposed to housing and highly indebted households. At the same time, many young and innovative firms – which are the drivers of job creation and productivity growth - struggle to access finance. And financial frictions impede the alignment of financial flows with environmental sustainability. Addressing these obstacles, through regulatory change, developing alternatives to bank finance and facilitating technological transformation, would raise productivity and set the recovery on a more sustainable path. Financial inclusion and financial literacy are comparatively high and financial education is entrenched at schools. Further efforts are still needed to address persistent gaps in outcomes for disadvantaged groups, accompanied by stronger consumer protections to ensure that the recovery is inclusive.

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