Economists worry over lengthy lockdowns

·3-min read

There are growing concerns the Australian economy may slide into another recession as lockdowns in key cities persist and political cracks appear in the national COVID-19 recovery plan.

Economists are predicting an economic contraction of as much as four per cent in the September quarter as a result of mass lockdowns, which may weigh on the December quarter as well.

"We still can't rule out a technical recession if nationwide lockdowns extend into Q4," BetaShares chief economist David Bassanese said.

"While our rapidly rising vaccination rate is great news and bodes well for re-opening, there's lingering uncertainty over the minimum level of COVID cases state governments will still find acceptable," he said.

Two quarters of economic contraction constitutes a technical recession, as recorded last year during the initial impact of the pandemic, and the first such downturn in almost 30 years.

HSBC chief economist Paul Bloxham is also concerned that the impressive "v-shaped" recovery seen after last year's national shutdown is unlikely to be repeated this time around.

He says the extension of the NSW lockdown to the end of September, Victoria's extended lockdown and a clear statement from policymakers in NSW that cases are not expected to fall back to zero add risks to the outlook.

"This last factor means that a snap, broad-based re-opening of the NSW economy at some vaccination rate threshold seems less likely and that the borders of the remaining states and territories with NSW are set to remain heavily constrained for an extended period," Mr Bloxham said.

But Prime Minister Scott Morrison is demanding the national COVID-19 plan is adhered to that would see states start opening up at 70 and 80 per cent vaccination rates.

"This national plan means that, when we reach 70 per cent, we can begin saying goodbye to those lockdowns because lockdowns ... will do more harm than good at that time," Mr Morrison told parliament.

"It puzzles me why anyone would want to go against a plan that has been so carefully prepared."

Some premiers appear to be baulking at such an opening up to NSW in the future, coming at a time of record levels of new infections.

Just over 30 per cent of Australians are fully vaccinated at present.

Stuck in the middle of lockdowns and political finger pointing are businesses, such as retailers.

Australian Retailers Association CEO Paul Zahra says "For Lease" signs are a common feature on CBD shopfronts in Sydney and Melbourne, where outbreaks of the Delta strain of COVID-19 have occurred.

"Lockdowns have a direct impact on retail sales, as well as business and consumer confidence," he said on Monday.

"Those impacts can be felt long after restrictions are eased, as it takes time for confidence and foot traffic to build up again - it's not an immediate snap back to the way things were."

The latest Mastercard SpendingPulse figures, which measure in-store and online retail sales, showing a drop of 5.6 per cent in July and 6.3 per cent lower than a year earlier.

Greater Sydney and surrounding areas were subject to stay-at-home orders in July, with Victoria, South Australia, and parts of Western Australia and the Northern Territory also going in and out of lockdown over the course of the month.

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