Latest CBA index shows Victorian lockdown has set back Australia’s swift economic recovery

New figures reveal the effect Victoria’s lockdown and newly imposed travel restrictions have had on business activity across Australia.

Renewed coronavirus restrictions have dented business activity within Australia, pushing back prospects of a swift economic recovery.

Commonwealth Bank’s latest Purchasing Managers’ Index has revealed the country’s business activity has contracted in August, as Victorian lockdowns and newly imposed state travel restrictions reverse the economic improvement experienced in June and July.

Australia’s economy was thrown into recession following the onset of the coronavirus pandemic in March which forced the majority of business activity to halt.

Economic conditions began improving in May following the easing of restrictions from the initial lockdown period.

At August 20, the index position fell 9 points compared with the previous month to 48.8 points, which is below the 50 point mark that signals whether there has been an improvement or a decline in activity.

CBA head of Australian economics Gareth Aird warned unemployment within Victoria would rise as a result of the stage 4 restrictions.

“The decline in business activity over August is hardly surprising given the lockdown measures in Victoria,” he said.

“The fall in employment is the inevitable consequence of shutting down large parts of the Victorian economy.”

Commonwealth Bank’s latest Purchasing Managers’ Index has revealed the country’s business activity has contracted in August. Picture: NCA NewsWire / Andrew Henshaw

Mr Aird noted the contraction in the index was likely only from Victoria’s woes, while the other state and territory economies likely expanded over the month.

CBA said the downturn had primarily been driven by a slowdown in the service sector, as manufacturing output had risen.

Export demand continued to decline for the seventh month in a row due to the dampening of global consumption sparked by the coronavirus pandemic.

Despite the setback, optimism in both the service and manufacturing sectors has improved, with business expecting further recovery in the next 12 months.

Mr Aird said there remained concern around the longer-term impacts the virus would have upon Australia’s economic activity.

“Encouragingly, firms collectively retain an optimistic view on the outlook despite the setback in Victoria,” he said.

“Ongoing fiscal support for households and businesses remains critical to ensuring that optimism is not misplaced.”