Experts warn of economic hit from Victorian lockdown

Experts have put a dollar figure on exactly how much the economy is losing thanks to Victoria’s fourth lockdown. And it’s a whopper.

Experts are warning a prolonged Victorian lockdown will hit the economy upwards of a billion dollars a week.

A further seven-day lockdown of the nation’s second-most populous state has prompted a number of economists and banks to predict a longer drag on Australia’s revival from the pandemic.

Melbourne and Victoria have been gripped by an extended lockdown following a cluster outbreak in the city’s north which has grown to more than 60 infected.

Ernst and Young, KPMG and NAB all believe the lockdown is costing the economy more than $100m a day and is denting gross domestic product by approximately $1bn a week.

Melbourne’s lockdown is costing the economy $100 million a day. Picture: Daniel Pockett / Getty Images

NAB executive Michael Saadie warned Victoria’s circuit breaker lockdown is likely to rupture confidence among businesses teetering on the edge of failure.

“The current circuit breaker in Victoria will almost certainly impact business confidence and we’ve certainly seen this play out with calls for additional support from the federal government,” Mr Saadie said.

CreditorWatch also flagged the pullout of JobKeeper will expose a number of zombie firms and is likely to see a flood of external administrations.

“Now, with the uncertainty surrounding the severity of the Melbourne snap-lockdown, this will likely accelerate the external administrations for some of these businesses,” CreditorWatch chief executive Patrick Coghlan said.

“Despite the Victorian Government intervening with a $250m support package for businesses, this isn’t comparable to the size of JobKeeper and depending on the length of the lockdown, we’ll likely see more businesses fail without further investment.”

NAB executive Michael Saadie says Victoria’s current lockdown will likely rupture confidence among businesses on the edge of failure. Picture: NCA NewsWire

Ernst and Young chief economist Jo Masters said Australia’s vaccination drive is critical in limiting the economic impact from lockdowns.

Masters did note, however that an out of control spread of the virus would have more dire consequences than a one or two week lockdown.

“Locking down is a health decision but has an economic consequence (but) we know that not tackling the virus is a worse outcome,” she said.

“Most of the estimates are around a billion dollars a week in terms of the cost of the lockdown.

“This Covid virus is not going away. We have to learn to live with it and the vaccine rollout is a critical part of that.”

EY chief economist Jo Masters says letting the virus run rampant would have worse consequences for the economy.

Ms Masters believes Melbourne’s fourth lockdown won’t dent the national recovery overall.

Her comments coincide with latest GDP figures which revealed economic activity has rebounded to above pre-pandemic levels.

March quarterly GDP rose 1.8 per cent compared to the prior corresponding quarter.

NAB chief economist Alan Oster said Victoria’s lockdown and the slump in activity is likely to dent gross state product by one per cent.

“Across the economy more generally I would be expecting a 0.25 per cent hit over the quarter,” he said.

Mr Oster noted other states and territories are likely to be impacted by the loss of revenue coming from Victoria due to domestic border closures.

According to NAB, discretionary funds from Victorians are likely to be locally spent, while border closures dent confidence in travel.

This is expected to boost local spending after the lockdown period.

Originally published as Experts warn of economic hit from Victorian lockdown