Commonwealth Bank economist Gareth Aird said positive outlooks on Australia’s economic growth in 2021 “has always been predicated” on the assumption that COVID-19 outbreaks are contained.
But with NSW’s lockdown – which will enter its fourth week of lockdown on Thursday – now being extended until the end of July, Australia’s economic rebound is under threat.
“The current lockdown of Greater Sydney and the rate of community transmission of COVID-19 poses a significant risk to the Australian economy over [the second half of 2021],” Aird said in a research note.
Greater Sydney contributes a quarter to the entire nation’s GDP, and each week of lockdown slashes roughly $1 billion off GDP growth, he said.
“A lockdown therefore of [around] seven weeks would subtract a large 1.4 per cent from GDP in the third quarter of 2021,” Aird added, noting that only four days of the lockdown were in the second quarter.
“Such an outcome on our figuring would see the national economy contract over the September quarter by around 0.7 per cent.”
But likely easing of restrictions in the final quarter of 2021 would mean stronger GDP growth, he added.
“The total hit to GDP in 2021 would be around 0.4 per cent because the lost production over the September quarter represents a permanent loss in output.”
AMP Capital chief economist Shane Oliver is also revising down his forecasts. Across most of this year, Oliver has been predicting GDP growth of around 4.75 per cent for 2021.
“If the Greater Sydney lockdown extends to say seven weeks costing around $7 billion, it would likely flatten September quarter GDP growth … and bring growth this year down to around 4 per cent,” he told Yahoo Finance.
And if it extends even further than that, the Federal Government will have to dig further into Commonwealth coffers, Oliver indicated.
“A further extension and tightening of the lockdown would require more government lockdown assistance in order to minimise the economic impact.”
“Fortunately, banks are already offering debt repayment deferrals for affected small business and home loan customers which will, as we saw last year, limit defaults and any negative impact on the property market,” he said.
All of the Big Four banks have recently come forward to offer mortgage repayment holidays amid NSW’s extended lockdown.
Unemployment looks set to rise again
The jobless rate, currently at 5.1 per cent, has been dropping steadily for several consecutive months as the economic recovery in the first half of 2021 gathered pace.
But if history repeats itself, then the unemployment rate will likely inch upwards again.
“If a similar outcome occurs this time around, that is, if employment falls by 200,000 and unemployment increases by 50,000, it would have the direct impact of adding 0.4 per cent to the national unemployment rate, all else equal,” said Aird.
These figures were echoed by Oliver, who said unemployment would be pushed up temporarily to around 5.5 per cent.
“[We will] likely see it remain around that level by year end, rather than fall to 4.75 per cent as we were expecting,” he told Yahoo Finance.