Delta Covid-19 variant hits national economy for $12bn

Queensland’s eight-day lockdown will add a further $600m to the growing economic toll from Delta lockdowns.

The Delta strain has shredded Reserve Bank governor Philip Lowe’s plans to wind back its QE program in September. Picture: James Brickwood

Queensland’s eight-day lockdown will add a further $600m to the growing economic toll from Delta lockdowns, cementing expectations that RBA governor Philip Lowe on Tuesday will abandon plans to wind back the central bank’s bond-buying program.

There are fears the wave of restrictions in NSW, Victoria, South Australia and now Queensland could trigger hundreds of thousands of job losses, centred in Sydney, and the national economy could contract by as much as 2.4 per cent, or $12bn, in the September quarter.

With the cash rate stuck at 0.1 per cent, economists said the Reserve Bank board on Tuesday would offer only “symbolic” extra policy support, most likely by keeping its quantitative easing program unchanged at $5bn a week rather than reducing it to $4bn from September, as flagged.

Economists also said the RBA would be wary of adding further fuel to the housing market.

Home values continued to climb in July to be up 16 per cent over 12 months – the strongest annual growth in 17 years, according to CoreLogic figures released on Tuesday.

CBA head of Australian economics Gareth Aird, who estimated the lockdown in southeast Queensland would cost $600m a week in lost GDP, said the RBA was effectively sidelined.

“It really is about the fiscal response – only the government can get money into the hands of ­people,” he said.

Scott Morrison on Monday thanked those in southeast Queensland for their patience, saying he was hopeful there would be a need for only a “short and strong” lockdown as in Victoria and South Australia.

“It’s … a difficult thing to go through these lockdowns. But, as you say, people now know the drill. And, sadly, this is the drill we have to follow with the Delta variant. It’s changed everything,” the Prime Minister told 4BC radio.

“The difference … with the Delta variant is it just moves at a much more rapid pace. As with the other states, financial support will be provided by the federal government after the end of the first week.”

Australian Retailers Association chief executive Paul Zahra said with the new Queensland lockdown, the Delta variant had now put $12bn of retail trade at risk nationally.

He called for the return of the Leasing Code of Conduct – a set of “good faith” principles to ­assist struggling small businesses in negotiations with their landlords – and reimposition of flexibilities in the Fair Work Act to allow employers to more easily adjust workers’ hours. “The continued, rapid transmission of the virus in multiple states reinforces the need for ­national solutions to what is quite clearly a national challenge,” Mr Zahra said.

The RBA unleashed a wave of monetary policy support last year to help cushion the blow from the Covid recession, culminating in a suite of announcements at its Nov­ember meeting that included a rate cut to 0.1 per cent and a commitment to keep rates at that level for three years via a policy known as “yield curve control”. The central bank also launched what would be a $200bn QE program to put downward pressure on the currency.

Dr Lowe, with much fanfare, had announced plans to take the first, tentative step to unwind the QE program from September but the arrival of the Delta variant has delayed that so-called taper, ­potentially until early next year.

The RBA governor on Tuesday will provide a preview of the key growth and employment estimates, to be released in full in Friday’s Statement on Monetary Policy. Dr Lowe will also appear in front of a parliamentary committee on the same day.

The RBA’s most recent forecasts in May had the unemployment rate reaching 5 per cent by the end of 2021, and 4.5 per cent by the close of the 2022. Those estimates had looked increasingly pessimistic after the jobless gauge reached 4.9 per cent in June, but may now prove overly optimistic.