Melbourne’s lockdown could spark lengthy coronavirus recession

Victoria’s drastic stage 4 restrictions have left many businesses “against the wall” and certain industries teetering on the brink of collapse.

As Victoria grapples with the toughest restrictions in our nation’s history, experts have warned the impact of stage 4 measures could be disastrous for the economy and certain industries.

Speaking to the media on Monday afternoon, Premier Daniel Andrews warned the new six-week coronavirus lockdown would see 500,00 residents working from home and an extra 250,000 stood down from their roles.

But the Victorian Chamber of Commerce and Industry warned the toll would likely be far higher, with “thousands more” jobs lost and many businesses all but doomed.

Chief executive Paul Guerra said it was the “biggest challenge” the state’s businesses will ever face and that many would not survive.

“For many struggling businesses already only just hoping to make it through stage 3 restrictions, closing for six weeks will be the end,” he said.

“Victoria’s economy will effectively be shut down for the next six weeks … But the cost of the actions to get to that point will be devastating and long-lasting, with the effects felt by all of us for many years.”

NAB chief economist Alan Oster told the ABC it was the most severe economic fiasco he had witnessed.

“In terms of sharpness in the decline in activity, this makes the recessions in the ’80s and ’90s look like child’s play,” he told the organisation, while other economists predicted the recession could extend for the whole of 2020.

But the lockdown is hitting some industries harder than others, with retail, manufacturing, construction and hospitality particularly at risk.

RETAIL

Australian Retailers Association CEO Paul Zahra said the stage 4 restrictions would have a “devastating impact” on Victorian retailers and that there would be an “immediate financial loss” for stores deemed as being “non-essential” by the government.

Queensland University of Technology retail expert Dr Gary Mortimer agreed, telling news.com.au it was the biggest crisis the sector had faced in his lifetime.

“Prior to COVID-19, certain sectors of retail were already struggling – the most notable would have been big department stores like Myer and David Jones but also the clothing, footwear and accessories sector.

“At the beginning of 2020 we were already talking about a ‘retail apocalypse’ with many big apparel brands going into receivership.

“We had the first wave of shutdowns in March and April across the nation and at that stage we saw a number of other retailers struggle in the marketplace as well as restaurants, cafes and bars. We’re now facing a second wave for those businesses that somehow survived the first shutdown period and have now reopened or are looking to reopen. It’s not unreasonable to think they may not successfully progress through the next round of shutdown.”

Dr Mortimer said the “economic instability” faced by those businesses that had closed, reopened and were now closing again would make it “incredibly challenging” to survive.

And while many companies were being propped up by government subsidies such as JobKeeper, rent freezes and loan deferrals, he said it was likely many of these so-called “zombie” firms were on borrowed time.

“There may be businesses that were already on the knife edge at the beginning of this year with six months of trade left of the financial year, but since then they’ve experienced at least two significant shutdowns,” he said.

“At the point when costs need to be met and bills paid, we may see a number of zombie companies fall into voluntary administration.”

He said the retail catastrophe was impacting not only individual businesses but shopping centres as well, with closed stores and vacancies caused by failed ventures leaving some centres resembling a “ghost town”.

CONSTRUCTION

KPMG chief economist Dr Brendan Rynne said the Victorian lockdown would see an $830 million or 2.5 per cent drop in lost output in August – and that September could be even worse.

That’s because under the new rules, major private construction projects will be stripped to just a quarter of the original workforce from Thursday, while small work – such as home renos – will be limited to just five workers on site.

And that applies to existing projects only, with new ones halted until after the lockdown lifts – and if jobs dry up midway, the end of the restriction period could be devastating for the sector, although it’s tough to predict how it will all play out given it’s a brand new situation.

Dr Rynne said as there was no precedent here in Australia, KPMG examined New Zealand’s experience for guidance on what to expect in Victoria.

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September could be a horror month for construction. Picture: Brett Wortman/Sunshine Coast Daily

“If you look at the employment structure in Victoria there’s probably around 200,000 jobs that are in the ‘goods producing’ (manufacturing, utilities and construction) sectors in Victoria that are now caught up in stage 4 that weren’t really directly impacted in stage 3 – of which around half can’t work from home,” he said.

“However, not all of these jobs are immediately ‘at risk’ – construction will wind down, and therefore the jobs risk is probably towards the end of the next six weeks rather than at the beginning – so September could be worse than August.”

But while the fact that Victoria is now out of sync with the rest of the nation does cause some headaches in relation to government policies and health responses, Dr Rynne said it could also help soften the economic blow.

“Industries that are able to innovate and change direction will still be able to get on with their activities and because we’re not seeing a synchronous slowdown in the Australian economy, other parts of Australia will still be purchasing goods and services during stage 4 which will help ameliorate it, compared with the whole of Australia going into stage 4,” he said.

MANUFACTURING

IBISWorld senior industry analyst Matthew Barry told news.com.au a “significant chunk” – 27.9 per cent – of manufacturing enterprises were located in Victoria, and that the situation would therefore take its toll on the wider sector.

“Stage 4 restrictions will constrain turnover for Victorian manufacturing with many companies temporarily letting staff go, cutting wages and limiting operating costs,” he said.

“It’s really going to squeeze turnover for the current year and 2021 and with some manufacturers not able to operate for six weeks, there will be a significant impact.

“But JobKeeper may limit unemployment and essential manufacturing is expected to remain open if they apply a COVID-safe plan.”

Mr Barry said food processing and distribution centres were considered “high risk” and that supermarket distribution centres were expected to lower workflow as a result, which could cause shortages in Victoria and across the country.

HOSPITALITY

Restaurant and Catering Australia CEO Wes Lambert said the new restrictions would be a huge blow for hospitality businesses, especially those in regional areas where delivery was much harder.

“Food delivery apps generally don’t have coverage in regional areas and restaurants, pubs and hotels in those communities may be the only dining option apart from grocery stores, so it will certainly be a shock for those areas, especially those with little or no (coronavirus) infection,” he told news.com.au.

“For greater Melbourne that’s going into total lockdown, there will be a demand later in the day between 5pm and 8pm when business might get quite busy, so we’re grateful and quite lucky that transport and restaurants are allowed (to keep trading).”

RELATED: Victoria’s new lockdown rules explained

Many hospitality businesses will struggle under stage 4 restrictions. Picture: iStock

However, he said there were many businesses which had decided to wait to reopen until 50 patrons were allowed inside at one time – and that those would be devastated by the new shutdown.

“Those businesses will have planned and financed for reopening at (a capacity of) 50 and they are certainly against the wall now if they didn’t pivot during the first lockdown and remained closed for the duration,” Mr Lambert said.

He said the industry was closely following updates relating to “JobKeeper 2.0” and the landlord code of practice, and said support would now “most certainly” need to continue to apply at least in Victoria if not nationally.

SUPER FUNDS

Those of us lucky enough to have stable jobs in industries that have remained relatively unaffected might be fooled into thinking we’ve escaped the pain – but Dr Mortimer said most Aussies would be impacted either directly or indirectly.

“Don’t forget many superannuation accounts are tied to shopping centre investments so it has a snowball effect on everyone,” he said.

“You might be working in education or journalism and think the shutdowns don’t financially impact you, but ultimately they do.”