Glacial Covid-19 vax rollout recession warning

The nation’s vaccination program may not be moving fast enough to prevent a second pandemic recession, economists warn.

Deloitte Access Economics’ Chris Richardson says Australia’s economic prospects are inextricably entwined with the success of the vaccination rollout. Picture: Richard Jupe

The nation’s vaccination program may not be moving fast enough to prevent a second pandemic recession, with Covid-19’s Delta variant creating longer, wider and harsher lockdowns, economists warn.

Deloitte’s Chris Richardson says the “jury is out” on whether vaccination rates will be high enough in time to avoid a second recession, as economists count Delta’s mounting costs.

Residents of Greater Sydney and surrounds entered their eighth week of lockdown amid growing expectations stay-at-home orders could extend into October, while Victorians prepared to be subjected to curfews and there were new and extended restrictions in the ACT and Northern Territory.

Mr Richardson said national GDP in the September quarter was now expected to contract by more than 2.7 per cent – or $14bn – led by an 8.6 per cent collapse in output in NSW.

The Deloitte Access Economics partner projected at least 300,000 job losses. The hit to the labour market is apparent in government figures, which show more than 1.2 million Australian workers have received the Covid disaster payment to offset a loss of hours – the bulk in NSW.

Mr Richardson said timing a potential bounce out from the latest restrictions remained entirely dependent on how many Australians were inoculated.

“Every economic forecast is a vaccination forecast. Every vaccination is an improved outlook for the economy. Every vaccination that happens now rather than in three months’ time is an improvement for the economy. When you are getting vaccinated you are not just saving lives, you are saving jobs,” he said.

Warren Hogan, a former ANZ chief economist and adviser to Judo Bank, said the Delta disruptions represented a “pause”, rather than a reversal, in the nation’s comeback from last year’s deep downturn.

Mr Hogan said assuming a weekly vaccine rollout pace of between 1.8 million and 2 million doses for the next two months would pave the way for the “concerted easing” of restrictions by the end of October. That should “start to see the economy come back in November and December, and ensures you get the bounce in Q4”, he said. “This is our W-shaped recovery.”

Mr Hogan said he still believed 2022 would be “an extraordinarily strong year for the Australian economy”. While he said he still expected a rebound in activity, the pace at which businesses and individuals could return to business as usual would be restrained by some social distancing measures lingering longer than in 2020. “We will be opening back up into living with Covid, and that’s a big difference.”

At vaccination rates of 70 per cent, Treasury estimates on the direct economic costs of the Covid-19 management strategies modelled by the Doherty Institute showed the “lowest-cost strategy” was to use “low-level restrictions to minimise cases, without more costly lockdowns”.

With seven in 10 Australians 16 and over inoculated, managing the virus would cost on average $200m per week on an ongoing basis, on Treasury estimates, and drop to $140m per week once the vaccination rate hits 80 per cent.

Mr Richardson said the roughly $7bn drag on annual growth implied in the least severe Treasury scenario was “chicken feed” in the context of $2 trillion in national economic output.