NSW takes us all back to hard landing

The NSW lockdown is clearly going to be seriously punishing – and not just for that state but right across the country.

Three weeks ago I wrote that the NSW lockdown was serious. It’s now clearly going to be seriously punishing – and not just in NSW but right across the country.

There is now very serious uncertainty over how long it will last; and that delivers a double blow to businesses and jobs – the lockdown itself and the uncertainty which is so damaging in its own right.

Three weeks ago the serious NSW lockdown was being joined by silly – I wrote embarrassing – lockdowns in WA and Queensland. They thankfully quickly petered out in their own absurdity.

But now the extended NSW lockdown has been joined by lockdowns in Victoria and SA. Frankly, while the lockdown in SA is obviously very significant – and punishing – to South Australians, it’s not that relevant to the rest of the country.

Victoria is very different. Joined with NSW , over half the national economy is in hard lockdown – and for the next two weeks, at least, NSW has gone even harder by closing construction.

NSW Premier Gladys Berejiklian leaves after a press conference to provide a Covid-19 update on Wednesday in Sydney. Picture: Getty Images

This puts the national economic impact somewhere between what happened in the June quarter last year when the whole country was locked down and the economy slumped by 7 per cent; and last year’s September quarter when only Victoria was locked down and the economy bounced up 3.5 per cent.

This year, though, we are not bouncing off a big previous quarter negative; this year’s June quarter GDP number will only surface next month; I suggest it will show growth of close to 1 per cent. Secondly, we don’t have anything like the stimulus across the nation that we had last year; back then JobKeeper was still being paid in full through the September quarter to the three-quarters of the economy (outside Victoria) that was no longer in lockdown.

If NSW now stays locked down for the entire quarter, which is looking increasingly likely, the national economy will shrink, GDP will go negative.

How negative all depends on Victoria.

If Victoria stayed locked down for the entire quarter, GDP could easily shrink by 4 per cent or more; depending on whether, how much and how quickly the federal government delivered new or increased stimulus.

Right now, it looks more likely that Victoria will come out of lockdown faster. If it did, the damage could be held to a 2 per cent drop or less. The most encouraging lesson from last year is that the economy should spring back quickly in the December quarter – assuming of course that NSW’s lockdown didn’t drag on into that quarter; or, realty disastrous worst case, it continued through it.

An empty cafe at Grosvenor Place in Sydney’s CBD. Picture: Toby Zerna

OK, the even more disastrous worst, but highly unlikely, case would be if Victoria was also still in lockdown towards Christmas.

The two things that drove the rapid spring-back last year and would again are the absence of foreign workers and the large cash balances households have built up, combined with those 2 per cent home loan interest rates that have dramatically boosted household cash flows.

In the wake of NSW joining the lockdown frenzy, and joining it with a level of hysteria from Premier Berejiklian, our economy is now totally hostage not just to the vaccine but the infection and death numbers and their relation to the level of vaccination.

I don’t see any state, now even including NSW, abandoning a lockdown decision driven by case numbers - even if and when we were, say, 80 per cent vaccinated.

Not unless, that is, the real-time, canary-in-the-coalmine, exercises in the UK and Israel in road-testing life with the vaccines and the virus, starts to deliver very few deaths.

In even a fully-vaccinated Australia – however defined - how much virus and how many deaths will we accept as the price of life without lockdowns?