Victoria coronavirus spike threatening Australia’s economic recovery

Victoria’s sharp rise in coronavirus cases over several weeks has but the entire Australian economic recovery at risk, a new report has warned.

Victoria’s sharp rise in coronavirus cases over several weeks has but the entire Australian economic recovery at risk, a new report has warned.

A Deloitte Access Economics Business Outlook report released today tips the national economy to contract by 3 per cent this year, and Victoria is likely to be one of the hardest hit states.

As other states have worked towards opening their economies in recent weeks, Victoria — which makes up a quarter of the nation’s GDP — has gone the opposite way by enforcing tough new lockdown measures.

Deloitte Access Economics partner Chris Richardson told The Australian Victoria was more exposed to economic turmoil because of its “dependence on migration and on foreign students in an age of lockdowns and closed borders”.

“Victoria is likely to take the unwanted title of worst performing state through the COVID ­crisis. Population, once a key growth engine, has well and truly stalled,” Mr Richardson said.

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An upcoming government report is expected to show the economy suffering its deepest recession since the 1930s. Picture: Brendon Thorne/Getty Images

“And Victoria’s case numbers were spiking as we went to press. The need for tighter restrictions has sent job losses soaring and consumers hanging on to their cash rather than spending it. Infrastructure is the bright spot in this dark near-term outlook until the economy can open back up.”

The Morrison government is putting together an economic statement for July 23, which is expected to show the economy suffering its deepest recession since the 1930s and the budget on track for its largest deficit on record.

However, there is some positive news in the Deloitte report. It says Australia’s “relative success in our virus fight” gives it more opportunity to re-open the economy, meaning the recession “may well have already passed its worst”.

Deloitte tips the economy to contract by 0.4 per cent through 2020-21 after shrinking by 0.1 per cent in 2019-20, marking the first time the economy had suffered two years of negative growth since the early 1980s recession.

After that, the firm expects the economy to grow by 5.3 per cent in 2021-22 and 4 per cent the following year.

After big losses in 2020-21, private consumption, housing construction and private investment are also expected to lift.

Victoria is desperately trying to control its coronavirus outbreaks. Picture: Asanka Ratnayake/Getty Images

It warns that with 835,000 people already having lost their jobs there is a risk of “generational damage” if governments do not ensure that there is a “smooth transition (in) timing and dollars” of support.

With the $1500 JobKeeper wage subsidy and doubling of JobSeeker to $1100 a fortnight set to end in September “too much support ends at the same time”, it said.

It also warned against a “phantom menace” of believing we have to “pay off all this new debt”.

It says the debt will shrink relative to the size of the economy if growth returns.

“Another phantom menace is the belief that, even if we don’t pay off the debt, we have to raise taxes and cut spending to fix the budget,” it said.

“That’s completely wrong and it unnecessarily scares the punters. The emergency measures are temporary. So, as Treasury notes, if we can repair the economy, then we’ll repair the budget.”