NSW building shutdown adds to economy woes

·3-min read

The Morrison government has been hit by the double-whammy of deteriorating voter support in the face of its troubled vaccine rollout at a time of a rapidly souring economic outlook.

The drop in the jobless rate to a decade low of 4.9 per cent in June could prove to be the last piece of good news for now as the economy sinks under the weight of COVID-19 lockdowns in its two biggest cities.

Economists believe the first contraction in the national economy since the depths of the pandemic is increasingly likely after the NSW government further tightened lockdown restrictions at the weekend.

Monday was the first day all non-essential retailing was closed in Greater Sydney, coupled with the construction industry being shut down until July 30, the first time this latter measure has been imposed in NSW.

Adding to the economic gloom, Victoria's lockdown is set to extend beyond its originally planned five days, but at this stage it is unclear by how much.

"We now have almost two-thirds of the national economy in lockdown ... this is really going to hurt," Australian Industry Group chief executive Innes Willox told Sky News on Monday.

"Lockdowns and border closures, they are the real economy stopper."

JP Morgan economists estimate Greater Sydney accounts for 70 per cent of construction in NSW and alone will cut economic growth by 0.5 percentage points for every month the restrictions are in place.

But NSW Premier Gladys Berejiklian defended the decision on construction sites on Monday.

"Having the risk of thousands and thousands of people being mobile at the one time, many of them coming from communities that have had cases, was too big a risk," she told reporters.

Meanwhile, Victorian Premier Daniel Andrews said great progress has been made in containing the virus in his state and that the lockdown had been the right course of action.

"But we will not be ready to lift this lockdown at midnight tomorrow night," he told reporters.

ANZ economists say it is now increasingly likely that the September quarter national accounts will show the economy in contraction.

It would be the first negative result since Australia plunged into its first recession in nearly three decades last June.

RBC Capital Markets chief economist Su-Lin Ong estimates the Greater Sydney construction shutdown over the next two weeks will be a further $1 billion drag on the economy.

Economists have estimated the twin lockdowns of Sydney and Melbourne could cost the national economy between $7 billion and $10 billion.

Ms Ong said even assuming some sort of recovery in the latter stages of the September quarter, she is predicting growth to be 1.5 per cent weaker than earlier thought, resulting in an overall contraction of 0.6 per cent.

Addings to the government's woes, the latest Newspoll showed federal Labor is now leading the coalition 53 per cent to 47 per cent on a two-party preferred basis, compared with 51-49 in late June.

A federal election is due within the next year.

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