Coronavirus: Recession to be deeper, last longer, as Victorian lockdown bites

The extended Victorian lockdown risks turning what many had hoped would be a short, sharp shock into an enduring downturn.

RBA board member Ian Harper. Picture: Aaron Francis

The Melbourne lockdown risks turning a short, sharp economic shock into an enduring slump, with RBA board member Ian Harper saying it has “certainly made the recession deeper”.

Yet despite the grim economic outlook, Professor Harper said: “I am not alone in still hanging on to the idea that the recovery will be rapid when it comes.”

As all non-essential businesses in Melbourne were forced into a six-week hibernation, Professor Harper cited private sector forecasts that the national economy will now shrink by 1 to 1.5 per cent over the September quarter. And ahead of new RBA forecasts on Friday, he said he expected the December quarter was unlikely to show much, if any, growth.

Professor Harper expected that once the health restrictions were removed in Victoria, the ­recovery would be robust. “The real impact of fiscal and monetary policy being so supportive comes into play when the supply restriction is removed,” he said.

As Queensland on Wednesday announced it would close its borders to residents of NSW and the ACT, University of Melbourne economics professor Jeff Borland warned that the Victorian lockdown could turn a health-driven economic shock into a longer-lasting recession.

“The big question is how long this (the Victorian lockdown) delays the recovery from COVID and the extent to which that increases the spillover into a broader-based downturn,” Professor Borland said. “The worsening ­impact of COVID means more people losing incomes, more business profitability lost, more confidence affected.”

He said Victorian Premier Daniel Andrews’s prediction that 250,000 people would be stood down as a result of the stage-four lockdown was “certainly not ­implausible”.

“All we’d need for the (nat­ional) unemployment rate to be at least 10 per cent by the end of the year is for things to not get a lot better,” he said.

As business groups warned the ineligibility of some big employers for JobKeeper would force tens of thousands of Victorian workers on to unemployment benefits, Professor Harper said the government should revisit its plans to wind down income support ­packages.

“The government absolutely needs to be thinking about how that transition works,” he said.

Professor Borland said the government would need to “keep providing sensible stimulus measures to support the economy”. “That’s especially the case if we move into a more general downturn.”

Opposition Treasury spokesman Jim Chalmers said the planned reduction or withdrawal of income support programs including JobKeeper and JobSeeker “were announced when Scott Morrison thought Victoria would be opening up soon, not closing down”. “Government support in the economy should be tailored and responsive to the changing economic conditions,” Dr ­Chalmers said.

The comments came as global ratings agency Standard & Poor’s warned that Victoria’s AAA credit rating was at risk should the lockdown not succeed in flattening the rate of new infections.