Strap in, it’s a bumpy ride ahead as Victoria goes into lockdown

Australia’s economic outlook has suddenly and significantly changed for the worse as Victoria joins parts of NSW and Queensland in lockdown.

Melbourne and the rest of Victoria has gone into a 7-day lockdown. Picture: NCA NewsWire / Andrew Henshaw

Nearly three-quarters of the Australian economy is now back in lockdown – the most it’s been since that first national lockdown that sent the economy plunging by a devastating and never-before-seen 7 per cent in the June quarter last year.

This suddenly and significantly changes for the worse both the immediate economic outlook and indeed also the prospects into 2022.

It guarantees another big plunge in GDP in this current September quarter, a surge in the jobless numbers, and devastation across especially small and medium sized businesses.

Just a week ago it was all looking so – optimistically – different.

Heading towards last weekend, only the greater Sydney metro area was in tough lockdown – less than a quarter of the national economy.

Victoria had taken the first big step out of its Lockdown 5.0 and was counting down to next Tuesday and the (likely?) end of all restrictions. There was no lockdown in south-east Queensland.

A person walks across Morrell Bridge in Melbourne. Picture: NCA NewsWire / Andrew Henshaw

So in the space of a week, the change has been dramatic – and indeed a broader pointer to what lies ahead unless and until almost the entire adult population is vaccinated.

That’s to say, as I’ve been explaining, Ken Henry-style ‘go early, go hard’ lockdowns in a state at the first sign of Covid cases.

Indeed, that was specifically agreed at National Cabinet last Friday: a direct unanimous endorsement of Victoria’s Lockdown 5.0 and a rebuke to NSW’s ‘too little, too late’ moves.

Although the broader implications, in terms of the economic consequences and the demands on Canberra to provide more fiscal support, do not seem to have been widely far less fully appreciated.

A week ago, and before not only that crucial National Cabinet, but also before the Queensland and (the new) Victoria lockdowns, the expectation – maybe, over-optimistic hope would be more accurate – was that NSW would get on top of its outbreak and come out of lockdown at the end of the month or relatively soon after that.

On that basis, yes, the overall national economy was going to take a hit through this September quarter. But it would be much milder – maybe a negative 1.5-2 per cent - compared to that horror 7 per cent last year.

Further, we would then spring back sharply in the December quarter and head into a, hopefully, vaccinated no-lockdown 2022.

Empty bar tables in Melbourne CBD during COVID-19 lockdown last year. Picture: NCA NewsWire/ David Crosling

Therefore the targeted relief of JobKeeper Version 2.3 and direct joint federal-state payments to support battered businesses cash-flows, while certainly not being over-generous would be sufficient.

Now all of this is back in the melting pot. The NSW lockdown is going to be longer; then add on Queensland and Victoria.

But that’s only the start; the prospect is that we will now be running lockdowns all through the December quarter as well. And this time they will include previously lockdown-reluctant NSW.

Assuming of course, it does actually emerge from this lockdown to be able to go into a ‘go early, go hard’ lockdown ‘next time’.

This prospect is thus very significantly different to last year. Back then, the whole country except Victoria came out of lockdown and stayed out of lockdown through the September quarter. And then was joined by Victoria through the December quarter.

So after the 7 per cent June quarter GDP plunge, it sprang back half of that – 3.5 per cent – in the September quarter; and then most of the rest in the December quarter.

This year it’s effectively ‘official policy’ that won’t happen. As we are now in exactly the race the PM said we weren’t in: between vaccination levels and the virus. And jobs and businesses will be the escalating losers.

This reality must also force a rethink on the policy support: both in terms of the people who are going to be hurt and the broader economy.

Strap in; it’s a bumpy ride ahead.