Confidence in Victoria virus response key for Australian economic recovery

Much is riding on whether Victorian Premier Daniel Andrews can contain the COVID pandemic. Picture: Andrew Henshaw

While the headline force behind this week’s American and global sharemarket sell off was fear about further US economic stimulation, it also marked a significant lift in sharemarket recognition that COVID-19 infection rates are back as a major market force.

And Australia has a unique variation of the global COVID-19 market forces: a situation where the Premier of our largest state has deep fears about what is happening in the second largest state and demands that the borders remain closed.

The massive infection rates in both Europe and the US and the pressures for a returned to stricter lockdowns are beginning to worry markets.

It is clear that the virus control systems in both the US and Europe were simply not good enough to control COVID-19 once lockdown restrictions were eased.

And of course in the US wearing a mask became a political issue, further fanning infection rates.

In Australia, NSW Premier Gladys Berejiklian fears that the Victorian Premier and his public service systems will not be good enough to be able to control the virus now that lockdowns are being eased.

She fears a smaller version if the European experience could take place in Victoria.

Accordingly, Berejiklian is refusing to open up the NSW border even though Victoria is currently reporting low infection rates. All other states have developed good systems so Berejiklian’s nervousness is spreading around the country and it is possible that the Christmas travel boom will not involve Victorians or Victorian visits.

If Berejiklian’s fears are unfounded and Victoria does control the virus as lockdowns are eased it will be an enormous boost for the nation and sharemarkets.

However while we are better placed than most other nations, ANZ CEO Shayne Elliott has warned that the Australian economy will still be suffering the after effects of the virus well into 2021 even if Victoria joins the other states and controls the virus. .

Berejiklian’s main Victorian concern is that the high rate of random testing taking place in the southern state is a clear sign that Victoria’s contact tracing systems are not working well enough to allow more focused testing. When a state is in lockdown those flaws can be contained but are high risk as restrictions are eased.

Victoria is installing a new contact tracing software system which is different from NSW and it is not ready for the current easing of restrictions.

In Melbourne’s northern suburbs outbreak last week, many of the same administrative mistakes that were made in the hotel quarantine disaster were repeated albeit on a smaller scale.

That means that Victoria’s abandonment of cabinet responsibility and its replacement by a so-called mission system is not working. Nevertheless, Victoria does have a much better testing and contact tracing system than existed at the beginning of a second wave.

In addition the use of masks is widespread and the virus has almost been eliminated in regional Victoria .

The overall level of the sharemarket in the next few weeks will be set by the aftermath of the US presidential election. But in Australia lurking in the market background will be the level of infection rates In Victoria and the state’s ability to control them.

And a further set of lockdowns or a slowing in the rate of easing might not be politically possible. The protests in Melbourne at the end of the long lockdown were falling into the hands of anarchists and professional protesters. Any reimposition of lockdowns could see Victoria embrace some of the morass that has engulfed parts of Europe and the US. The daily infection rate in Victoria and the Australian sharemarket are set to have a closer connection.