Economy to shine as Covid-19 lockdowns end

As Australian households and businesses look forward to regaining their lost freedoms, the economy is preparing to make its second Covid comeback.

States’ and territories’ contribution to GDP.

As Australian households and businesses that have suffered through weeks and months of Delta lockdowns look forward to regaining their lost freedoms, the economy is preparing to make its second Covid-19 comeback in as many years.

Delta has dealt a heavy blow in the September quarter, with Treasury estimating an economic contraction of “at least” 2 per cent. Private sector estimates run to a 3-4 per cent drop in real GDP.

Employment in NSW plunged by more than 170,000 in August, with worse likely to come in September as the labour force survey accounts for the Victorian and ACT lockdowns.

Bad, sure. Devastating for many families and businesses. But talk of a double-dip recession has disappeared. Australians, particularly in NSW, Victoria and the ACT – who have borne the brunt of the Delta outbreak – can see the light at the end of the tunnel.

After reaching 70 per cent vaccination rates among the adult population, NSW is on track to ease restrictions from Monday, with the other two jurisdictions due to follow in the weeks after.

And the eagerness among the half of the population forced to endure stay-at-home orders is palpable.

Paul Zahra.

Shops were getting ready to welcome back customers “in droves”, Australian Retailers Association chief executive Paul Zahra said this week. Holiday accommodation for the upcoming summer is disappearing fast. Good luck booking a haircut this month.

The degree of pent-up demand can be counted in the additional $230bn sitting in bank deposits and mortgage offset accounts since the start of the pandemic – what Jarden chief economist Carlos Cacho has called the “dry powder” that will hopefully reignite a surge in spending this Christmas.

No wonder Reserve Bank governor Philip Lowe, ever the ­optimist, this week could more confidently predict an economic “bounce-back” in the final quarter of the year.

KPMG chief economist Brendan Rynne expects real GDP will climb by 2.4 per cent over the three months to December. NSW’s accelerated roadmap could add 0.1-0.2 per cent to that figure, Dr Rynne said.

The RBA’s latest set of forecasts – finalised in early August, so potentially a touch overoptimistic – projected real GDP in 2021 would grow by 4.75 per cent, and by 5 per cent in 2022. More recently, global ratings agency Fitch predicted 3.7 per cent growth for this year, and 4.5 per cent in the next.

Westpac chief economist Bill Evans says: “The quicker we reach our vaccination goals, the faster the country will be able to bounce back.

“I expect a strong recovery in 2022 and I’m optimistic our unemployment rate will come down even further by the end of next year.”

Most encouragingly for the more than half a million employees stood down through the Delta lockdowns, Lowe noted this week that “many firms” have told the RBA’s corporate liaison unit that they have started hiring the staff they expect they’ll need as restrictions ease.

The data backs up the anecdotes.

A pedestrian moves past a Microsoft store in Sydney’s usually bustling Pitt Street shopping mall. (Photo by Lisa Maree Williams/Getty Images)

Jobs site Seek reported that NSW employers have embarked on a hiring blitz, with the number of jobs advertised in the state surging by 20 per cent in September, while vacancies nationally in the hospitality, tourism and retail sectors data jumped by 20-30 per cent.

“Businesses are clearly anticipating a strong rebound,” NAB economist Taylor Nugent says.

Josh Frydenberg is similarly confident the economy will snap back again. Indeed, the Treasurer is banking on it. He needs the budget upgrades to keep rolling, as it will give him the political space to announce a generous pre-election cash splash at the mid-year update, most likely to be delivered in December.

The fuzzy science of forecasting is unreliable at the best of times, and the pandemic has only made it more difficult by hugely widening the range of possible outcomes.

Bank economists and the RBA have warned that the reopening will be running the gauntlet of climbing infection rates as Australians get out and about.

They make the point that this time – unlike in 2020 – we will be reopening with Covid-19 still in the community. Australians may not flock back to pubs, restaurants and gyms in as large numbers if the fear of infection remains.

The bet is that with the large majority inoculated, a big jump in the number of new cases shouldn’t be reflected in a similarly large rise in hospitalisations and deaths.  The evidence so far in Australia is encouraging, as it generally is overseas. But it’s far from assured, and if hospital systems are overrun, then authorities will have no choice but to reimpose economy-crushing lockdowns.

CBA head of Australian economics Gareth Aird says there is “a good case to be made to upgrade household consumption based on the news around NSW, but I’m in no rush just yet”.

Aird forecasts that consumption will bounce by 2.3 per cent in the December quarter, after a 5.7 per cent collapse in the previous three months.

He says he will wait to see how the bank’s internal spending data looks as NSW partially reopens before tweaking his estimates, adding that there was “always the risk another state like Queensland goes into lockdown just as NSW comes out”.

A handbrake will be that Covid-free states, led by Western Australia, are likely to delay lifting border controls, potentially into 2022, blunting the national recovery.

Evans says: “Open domestic borders for travel will be critical to a strong economic fightback.”

The road ahead is far from clear of obstacles. But the evidence is that after a long winter of discontent, the economy is ready to bloom again.