Sydney Covid-19 lockdown threatens economic comeback

Major additional support for affected businesses and workers now ‘critical’ to securing an anticipated bounce-back once restrictions are lifted, economists say.

The restrictions have turned the Sydney CBD into a virtual ghost town. Picture: Bianca De Marchi

The national economy will “go backwards” this quarter if Sydney’s lockdown extends beyond six weeks, economists say, with major additional support for affected businesses and workers now “critical” to securing an anticipated bounce-back once restrictions are lifted.

As Treasury officials prepare a joint federal/state package expected to include a reinstatement of the business cashflow boost for small businesses and potentially an expansion of the eligibility criteria of the commonwealth Covid disaster relief payment, Monday’s news of a further 112 cases triggered expectations that the lockdown could drag on into late July or even early August.

Prior to the latest outbreak of the more virulent Delta variant of the virus, private sector analysts had pencilled in real GDP growth of around 1 per cent over the three months to September, implying output would lift by about $5bn.

But CBA head of Australian economics Gareth Aird said an eight-week lockdown would wipe 1.5 per cent off GDP in the September quarter – about $7.5bn – enough to wipe out even the most optimistic of growth forecasts and “send the entire country backwards”. The impact on the labour market is also likely to be severe.

He said analysis of detailed labour force data showed that during the national lockdown last year Greater Sydney lost 192,000 jobs between March and May.

Despite the economic hit, Deloitte Access Economics partner Chris Richardson said even a further month of restrictions was unlikely to send the budget position backwards given the outperformance – including the blockbuster jobs growth and massive iron ore earnings – recorded since the May federal budget.

S&P Global Ratings analyst Anthony Walker said last month’s decision to upgrade the outlook on Australia’s AAA debt rating to “stable” from “negative” was based on the assumption future outbreaks and associated lockdowns would be short-lived – and, in particular, not be on the scale of the national restrictions of April and May last year, or Victoria’s 16-week shutdown.

“The question is how long the NSW lockdown is extended, and how much that is going to inhibit the economic situation not just in Sydney, but across the country,” he said, adding a single quarter of negative growth would not be enough to shift the dial of the national debt rating.

Nonetheless, Moody’s Analytics senior economist Katrina Ell said Sydney’s extended lockdown meant “Australia’s impressive comeback (is) threatened”.

The commonwealth has paid close to $43m in Covid disaster relief payments to 90,510 casual workers in NSW who have lost income as a result of restrictions, according to the Department of Social Services. Around 85 per cent of those paid claimed the higher $500 from having lost 20 hours of work or more, the rest claiming the lower $325 payment.

The amount paid in NSW by midnight Friday — covering the second week of the lockdown and two days of the third week — had already eclipsed the $26.6m in payments to more than 57,810 Victorian workers during the second week of that state’s restrictions in early June.

But the scale of the support from the Covid disaster relief payment scheme pales in comparison to JobKeeper – which the ACTU on Monday again called to be reinstated. Sydney workers on average would have received roughly $370m a week in wage subsidies during the $89bn JobKeeper program, assuming they received payments proportionate to the city’s 20 per cent share of the national economy.

In the absence of JobKeeper or JobSeeker payments, Mr Aird said it was “critical” additional emergency support be provided.

“Otherwise you end up doing a lot of damage that you don’t need to do,” he said. “Most households or businesses can last a week or two, but two months (for example) is a very long time.”

Mr Richardson agreed, saying previous experience pointed to an immediate bounce-back once restrictions were lifted, provided the cushion of fiscal support is there. With Australia one of only two advanced economies, with New Zealand, able to boast national output above pre-pandemic levels, EY chief economist Joanne Masters said she expected even an extended lockdown in NSW would prove a “setback, not a U-turn”.