Victoria’s shutdown sends big chill through economy

From midnight on Wednesday, one-quarter of the national economy will be in suspended animation. Victoria’s stage-four lockdown is placing a severe clamp on mobility to halt the spread of COVID-19 in Greater Melbourne and keeping a million workers at home until at least the end of September. Premier Daniel Andrews has drawn hard lines on which industries will remain open, operate with restrictions or cease operations for six weeks. Most retail, manufacturing and administration businesses will close, and strict limits will be placed on the number of workers in abattoirs, warehouses and building sites. Yet sectors in which there have been coronavirus clusters will continue to operate, including health, aged care and takeaway food. The bottom line is 250,000 workers will be stood down, companies will fail, business activity will slump further and Canberra’s welfare bill will continue to rise.

On Monday Scott Morrison announced a $1500 pandemic leave disaster payment for people required to isolate as a result of exposure to COVID-19. Tens of thousands of retail workers will be forced on to the $1100 a fortnight JobSeeker payment as their employers don’t qualify for the $1500 JobKeeper wage subsidy. Confidence is plummeting and supply chains across the nation will be disrupted as factories close and building sites revert to “pilot light” mode, as Mr Andrews described a one-quarter limit to the number of workers on some building projects. The Victorian Chamber of Commerce said lockdown 3.0 would be a “death knell” for many employers and employees due to loss of skills and local, interstate and international supply contracts. Mr Andrews said the economic dislocation would pervade Victoria for years.

The state’s extreme measures also will take a wider toll. After Tuesday’s Reserve Bank board meeting, governor Philip Lowe said Australia’s jobless rate would hit 10 per cent by the end of the year. He noted the recovery, now under way in most of the nation, would be bumpy and uneven given the outbreaks in Victoria. Official interest rates are on hold at 0.25 per cent, with Dr Lowe announcing the bank would be buying bonds in the secondary market to bring the yield on three-year government debt back to the target “of around 25 basis points”. Inflation has been snuffed out of the economy, with the consumer price index falling in the June quarter. But the RBA, which will issue fresh forecasts on Friday, believes the worst downturn since the 1930s will not be as severe as previously expected. The central bank’s “baseline scenario” is that gross domestic product will shrink by 6 per cent this year but will expand by 5 per cent next year.

In the bleak midwinter there are still some signs of economic life, aided by the lifting of restrictions in places where coronavirus cases are minimal or where community transfer is being held in check. New retail sales figures for June show shoppers and diners were back. Spending in cafes, restaurants and on takeaway food was up by almost 30 per cent, while sales of personal items such as clothing and footwear jumped by 21 per cent. Despite the pandemic and strained diplomatic relations, China’s demand for our goods has surged. The figures obtained by this newspaper for the first six months of the year bear out the Prime Minister’s claim that trade with China has never been stronger.

The news on business investment, especially outside the mining sector, is grim. Still, Infrastructure Australia says the pipeline of 155 priority road, rail and other proposals of national significance is valued at $64bn. These are extremely difficult times for the construction sector. New restrictions on workforce mobility and materials supply will delay projects and add to their cost. Victoria’s six-week lockdown will make preparations for the October federal budget even more difficult, especially as the bill for income support is showing no sign of tapering off. As well, the slump in company profits and more job losses will savage tax revenue. Canberra is at the mercy of Victoria’s success in limiting contagion in the community. Without winning on the health front, there is also no prospect of saving the private economy, the engine of revival.

As we argued on Tuesday, keeping public trust and improving social compliance in Victoria requires competence in policy and openness with information. The refusal to answer questions in parliament by state Health Minister Jenny Mikakos will send a further chill through citizens steeling themselves for a six-week deep freeze.