Coronavirus: NSW firms face ruin but fast recovery tipped

NSW chief economist warns small businesses are likely to go broke, JobKeeper needed to stem job losses as a result of Sydney’s ongoing lockdown.

NSW chief economist Stephen Walters. Picture: AAP

NSW chief economist Stephen Walters has warned that small businesses are likely to go broke and he remains concerned about job losses as a result of Sydney’s ongoing lockdown, but the state is unlikely to fall into recession, with a swift recovery predicted once restrictions are eased.

Mr Walters told The Australian that his preference was for the federal government’s JobKeeper wage subsidy to be reinstated due to its proven ability to shore up jobs, with current financial-support helpful as a substitute but less likely to guarantee job security.

The federal government has already ruled out reinstating the wage subsidy and instead has increased its commonwealth disaster payments for workers who are suffering from a loss of weekly hours.

While it remains unclear how long the Sydney lockdown will continue, Mr Walters said it seemed clear the state would encounter negative GDP growth in the September quarter followed by a return to normality in the December quarter if economic activity resumed.

“We’re in a pretty difficult position, clearly, with numbers not coming down. The economic impact is relatively modest, relative to last year, but if the health outcomes end up poor we’ll end up with poor economic outcomes as well,” he said. “We hope that doesn’t happen. We don’t know how long this outbreak will last … but if it does last a lot longer the damage will be more significant, that’s true.”

Treasury expectations around the damage remain modest. One reason is that companies were already reporting labour shortages moving into the June 16 outbreak, meaning they had an incentive to retain existing workers.

A second reason is that jobs already lost in some sectors, including hospitality, retail, tourism, travel and the arts, had not been returned over the past year, and those positions cannot be lost a second time, Mr Walters said.

The NSW economy shed 270,000 jobs during the height of the pandemic in 2020, which it later recovered in full during its recovery, adding a further 36,000 positions, according to government figures.

“There will be job losses in certain parts of the economy, as there always are, as activity gets compromised and you restrict peoples’ movement, but we don’t think it will be as bad,” he said.

Mr Walters joined the NSW Treasury in 2018, but was previously chief economist with the Australian Institute of Company Directors and chief economist for investment bank J.P. Morgan.

While not involved in the policy and strategic decisions surrounding lockdowns, Mr Walters does provide advice to the government surrounding productivity costs and impacts of the stay-at-home orders.

Among the considerations are work hours lost by parents as they attempt to homeschool their children, which can similarly affect the future earning capacity of children.

“For the kids themselves, if they’re in vulnerable cohorts or challenged areas of the state, being at home is detrimental to their education outcomes – and we know if kids lose a substantial amount of in-school learning, it does cascade as a drag through their lifetime earning capacity,” he said.

Careful not to cast any personal opinion on the current lockdown settings, Mr Walters said he was broadly aware of the argument to ease restrictions in some parts of Sydney, but that doing so needed to be balanced against known risks.

This included the fact that workers living in suburbs with high rates of infections tended to move around the city, increasing the risk of spreading the virus.