Covid-19 lockdown could become ‘permanent’, economist warns

Failure to tame Sydney’s Covid-19 outbreak over the coming week could mean the city’s lockdown remains a ‘permanent feature’ that will end only when most are fully vaccinated later this year.

Commonwealth Bank head of Australian economics Gareth Aird.

Failure to tame Sydney’s Covid-19 outbreak over the coming week could mean the city’s lockdown remains a “permanent feature” that will end only when the large majority of the population is fully vaccinated later this year.

CBA head of Australian economics Gareth Aird said the health outcomes in NSW over the coming week would be “very ­important” to determine whether months of further restrictions would move from a worst-case scenario to the most likely one.

Mr Aird said that a week from now “we will have a much better gauge as to whether or not the stricter lockdown will push the daily number of new Covid-19 cases down in a way that means we can project the end date of the lockdown”.

“If not, we are likely to be facing a central scenario for the economy that sees the lockdown in Greater Sydney as a permanent feature until a yet-to-be-determined vaccine threshold has been reached.”

Mr Aird said tighter restrictions on retailers and the construction industry in NSW alongside the announcement of “snap” lockdowns in Victoria and now South Australia would mean the hit to GDP in the September quarter would be “a lot” larger than the 1.4 per cent, or roughly $7.5bn, he previously estimated. It also meant the economic contraction would be significantly worse than the forecast 0.7 per cent.

With restrictions broadening to include more than half of the population, “income support to businesses and workers remains critical to ensure the economy has the best chance to rebound very quickly when restrictions are eased,” Mr Aird said.

The commonwealth has paid out more than $250m in Covid disaster relief to NSW workers who have lost hours as a result of the restrictions, with workers in SA and Victoria also eligible for payments of as much as $600 a week – matching the top wage subsidy amount in the December quarter of last year under the old JobKeeper program.

 

But the scale of the income support is massively different. The Australian calculates JobKeeper was injecting on average almost $930m a week into businesses to support staff over the three months to December, at a time when the economy was growing at its fastest on record.

Leading economists over recent days have backed calls from the Opposition, union groups, and tourism and hospitality bodies to reinstate JobKeeper – or at least a version of it – should restrictions stretch well into the future, a move the Morrison government is adamant is not on the agenda.

Josh Frydenberg on Thursday quoted Treasury estimates that the stay-at-home health orders in force across Sydney, Victoria and SA were costing $300m a day in lost economic output, a weekly hit to growth of more than $2bn

“To have your two biggest states, NSW and Victoria, in lockdown is a big blow,” the Treasurer said. He conceded the economy would “probably” go backwards in the September quarter, but said he remained “confident that if we can get on top of the virus we will see a strong bounce-back” and avoid another recession.