Terry McCrann: NSW is the new economic test case for Covid-19

NSW is beginning to look all-too ominously like 2021’s Victoria version 2.0, but for one important difference.

Tables and chairs are stacked away at a closed restaurant at Circular Quay in Sydney. New South Wales has recorded 50 new locally transmitted coronavirus cases reported on Saturday. Picture: NCA NewsWire/Bianca De Marchi

The ‘interesting’ week turned out pretty much – and broadly, pretty positively – as expected.

The one big and it was a very big exception was NSW and the virus – although there, it was not so much that NSW didn’t turn out as expected, but rather as was perhaps had rather over-optimistically been hoped a week ago.

A week ago, it was hoped the lockdown would either be ending this weekend or showing serious prospects of being loosened, with the virus under control the way NSW had so far always seemed to be able to do.

Instead, it’s gone the other way: NSW is beginning to look all-too ominously as 2021’s Victoria version 2.0 – albeit, fortunately, very thankfully, at least very hopefully, only in economic terms.

In 2020, Victoria not only closed down through the September quarter, plunging back deep into a recession all on its own as the rest of the country was on a strong recovery path; albeit with Victoria so bad that it still managed to slice close to 2 per cent off the whole nation’s growth in the quarter.

But Victoria was also in the process of recording fully 90 per cent of all the virus deaths (so far) in Australia.

They were mostly in aged care. That was before the vaccines. Now, almost all the aged care residents around Australia are vaccinated.

So the ‘best worst case’ of NSW as 2021’s version 2.0 of Victoria 2020 is that we get the economic pain – the loss of jobs, the destruction of businesses – without the deaths.

How much economic pain? Obviously, the answer is how much lockdown. Victoria’s went for three months, the best case forecasts for NSW are 5-6 weeks.

A person cycles along a street on July 10, 2021 in Sydney, Australia. Lockdown restrictions have been tightened across NSW as Covid-19 cases continue to emerge in the community. Picture: Getty Images

That’s the – hoped-for – positive. On the negative side, this year there’s no JobKeeper. Last year that was pumping $750 a week into the pockets of 3.5m Australians.

Very significantly, the money didn’t only go into the pockets of Victorians but people across Australia, who arguably no longer needed it. But hey, if the government insists on putting money in your bank account, who are you to send it back?

Actually it was the biggest taxpayer free lunch of all time not so much to the workers but the businesses which employed them. Tens of thousands of businesses around Australia had their wages bill paid by the taxpayer when they were no longer in lockdown.

This year, though, in NSW – which is nearly one-third of the national economy – that’s not happening even now they are in lockdown.

The businesses and their stood-down workers will get the much-reduced JobKeeper 2.0 which is really just a slightly higher version of JobSeeker – the dole.

So, as I wrote last week, we were suspended between Victoria’s daily zero cases and the NSW numbers.

Phew. At least the zero cases south of the Murray continued – while the other two big dynamics making for an ‘interesting’ week also played out positively.

Investors – really, the money managers on Wall St –thought about the latest monthly US jobs numbers (as I’ve explained, the most keenly watched statistic on the planet), and decided: yup, they are the not-too cold, not-too hot ‘Goldilocks numbers’ described by our AMP’s Shane Oliver.

Overnight Friday Wall St finished at (yet more) record highs after the Dow jumped more than 400 points. That sort of rise used to be huge, now with the Dow so high, it’s barely 1 per cent.

In truth, they never really had anything to worry about: the Fed is not going to turn off the easy money tap, the zero interest rates and massive money-printing which more or less forces investors to buy shares at whatever price, anytime soon and quite possibly anytime ever.

Our Reserve Bank followed through, as expected, on Tuesday. It kept interest rates at zero and announced a new program to keep buying government bonds to indirectly finance the budget deficit, although it won’t say that.

So, that was the week that was, setting up the weeks – and months – to come.

On one level, it all turns on the virus. Locally, what happens in NSW; globally in the US, in Israel and in the UK.

Why do I nominate those three?

Because the US is the country that matters most to the world. Israel because it is all-but 100 per cent vaccinated. And the UK because it is about to remove all restrictions despite having 25k cases a day, with the health minister expecting them to go to 100k a day.

All of them in their individual ways are ‘road-testing’ life with the virus and with the vaccines.

If they prove successful, combined with the massive economic pump-priming globally, we are headed for the mother-of all economic – and investment – booms.

Yes, watch NSW; but also watch those other three far more potent ‘test-cases’.

Originally published as Terry McCrann: NSW is the new economic test case for Covid-19