Delta strains the economy- July 2021
Despite reassurance from Scott Morrison, the Australian economy is facing a possible double-dip recession as lockdowns start to bite hard for local businesses. Sydney is facing an extended lockdown with early modelling conducted by the University of Melbourne suggesting stage four restrictions were unlikely to be lifted early September as case number continue to climb. Thus far, Australia has been widely lauded for its resilience and recovery from the peak of the pandemic in March of 2020, with June jobless statistics the lowest in over 10 years at 4.9%. However, fear over an escalation of the current outbreak could spell major economic trouble, should the public health response fail to steer Australia away from a Christmas catastrophe.
Several risks confront businesses as they prepare for round 2 of Covid fight night. Retail spending fell 1.8% off the back of Melbourne and Sydney lockdowns, with further dips expected from stricter lockdown measures. The ban on construction is expected to affect between 350,000 to 450,000 workers employed in greater Sydney with many workers dipping into redundancy balances and employers closing shop from the multi-week stoppage. Expectations now are a fall in third-quarter GDP, with the downside risk being an already contracting economy in Q2 placing Australia firmly in technical recession territory. Analysis by AMP Capita suggest a 0.4% expansion in June as the base forecast, raising some concern over a 'worst-case scenario'. Still, optimism that Australia will weather the storm is high. CBA economist Stephen Wu notes that months of accumulated precautionary savings "could be a tailwind to consumer spending once lockdowns end.” In addition, the international sector continues to act as a buffer against further shocks, a resilient trade position marked by a 7.5% rise in merchandise goods exports and a trade surplus of $13.3 bn in June.
With disaster support and emergency financial assistance back on the spending table, the question for the government is: "do you get déjà vu?". Over $5 bn in support payments have been issued to households and businesses alongside 518,000 requests for financial aid received by Services NSW in the last week. NSW Treasurer Dominic Perrotet has called for a reinstatement of JobKeeper, saying “As case numbers escalate or remain stubborn there will need to be extra financial support from the federal government.” This comes with the familiar concern of getting schools back to face-to-face teaching, a pertinent concern ahead of the 2021 HSC. Following an above-expectation budget balance, the current outbreak is likely to reach deep in the government's pockets to ease the economic pain. While it will come at a cost to taxpayers, Blueprint Institute chief economist Steven Hamilton has stated it far outweighs the long-term dislocation of a recession. It's now a waiting game until September to see the full scale of the damage, but no repair can begin without Delta being contained. The government and health authorities certainly face a difficult challenge for the rest of 2021.