How lockdowns in Sydney, Melbourne and Adelaide could cause another recession in Australia

Lockdowns without an end in sight have the potential to plunge Australia into another recession as governments struggle to contain the highly-infectious Delta strain.

Restrictions in Sydney, Melbourne and Adelaide are already costing an estimated $2.1billion a week. 

Treasury and the big banks are forecasting the economy shrinking in the September quarter as a result of shops being forced to close during July, August and September in Australia’s two biggest cities.

Should the lockdowns continue beyond September, there is the potential for the economy to shrink again in the December quarter.

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Lockdowns without an end in sight have the potential to plunge Australia into another recession as health authorities struggle to contain the more contagious Delta strain. Restrictions in Sydney (pictured is George Street), Melbourne and Adelaide are already costing an estimated $2.1billion a week

Lockdowns without an end in sight have the potential to plunge Australia into another recession as health authorities struggle to contain the more contagious Delta strain. Restrictions in Sydney (pictured is George Street), Melbourne and Adelaide are already costing an estimated $2.1billion a week

This would spark a technical recession and see Australia suffer recessions in consecutive calendar years for the first time since the early 1980s, following the downturn in early 2020 that was sparked by the national Covid lockdowns.

Sunrise host David Koch asked Treasurer Josh Frydenberg if there was potential for lockdowns to put Australia into another recession. 

Mr Frydenberg said the lockdowns in three cities were costing the economy $2.1billion a week – triple the $700million-a-week estimate of Sydney’s earlier lockdown of June 26 that allowed all shops excluding gyms to trade.

‘We probably expect the September quarter is negative,’ he told the Seven Network.

‘Let’s wait and see what happens in the weeks ahead. To have your two biggest states New South Wales and Victoria in lockdown is a big blow. 

‘Treasury estimates that having these three states with South Australia in lockdown is costing around $300million a day. 

‘Again, that is going to play out in many, many ways.’

Sunrise host David Koch (pictured left) asked Treasurer Josh Frydenberg (right) if that was a recession was possible. Should the lockdowns linger on beyond September, there is the potential for the economy to shrink again in the December quarter, covering October, November and the Christmas shopping month

Sunrise host David Koch (pictured left) asked Treasurer Josh Frydenberg (right) if that was a recession was possible. Should the lockdowns linger on beyond September, there is the potential for the economy to shrink again in the December quarter, covering October, November and the Christmas shopping month

NSW Premier Gladys Berejiklian on Thursday was unable to say how many days of zero cases of community infection in Sydney would be needed before the lockdown is lifted, even though it’s due to end on July 30.

‘I never want to delve into the hypotheticals,’ she said. 

‘Numbers may continue to be going up.’

NSW experienced its worst day of the Indian Delta strain with 124 new cases 48 of those infectious in the community.

University of South Australia epidemiologist Professor Adrian Esterman told Sunrise that Sydney was likely to be in lockdown until September because cases haven’t plateaued after five weeks, and it would take at least another five weeks to get close to zero community transmission.

But he conceded the virus would not completely go away, even as more effective vaccines were developed in the future.

This would spark a technical recession and see Australia suffer recessions in consecutive calendar years for the first time since the early 1980s, following the downturn of early 2020 sparked by the national Covid lockdowns (pictured are dog walkers in Melbourne on Thursday)

This would spark a technical recession and see Australia suffer recessions in consecutive calendar years for the first time since the early 1980s, following the downturn of early 2020 sparked by the national Covid lockdowns (pictured are dog walkers in Melbourne on Thursday)

While Australia’s jobless rate in June fell to a decade-low of 4.9 per cent, unemployment is set to rise in July.

New Australian Bureau of Statistics payrolls data covering the fortnight to July 3 showed a one per cent national fall in jobs, with cities not in lockdown such as Brisbane also affected.

Westpac is forecasting the Australian economy will shrink by 0.7 per cent in the September quarter while KPMG is forecasting a 0.5 per cent contraction.

KPMG chief economist Brendan Rynne is calculating the lockdowns are costing $220million a day in Sydney and $150million a day in Melbourne. 

But he said Australia was likely to avoid falling into recession as spending resumed in the final three months of 2021.

NSW Premier Gladys Berejiklian on Thursday was unable to say how many days of zero infectious Covid cases in Sydney would be needed before lockdowns were lifted, even though they are due to end on July 30

NSW Premier Gladys Berejiklian on Thursday was unable to say how many days of zero infectious Covid cases in Sydney would be needed before lockdowns were lifted, even though they are due to end on July 30

By September, sufficient doses of Pfizer vaccines are scheduled to have arrived in Australia, to help the economy emerge from a $10billion lockdown hit to economic output.

‘These past 18 months, including the bushfires, have proven how resilient the Australian economy is these external shocks,’ Dr Rynne told Daily Mail Australia.

‘We do bounce back relatively quickly. There’s still a fundamental strength in our labour market that’s driving strong growth at the moment.’ 

The pandemic has already seen the Federal Government spend more than $300billion on welfare measures as the Reserve Bank of Australia cut interest rates to a record-low of 0.1 per cent.

Australians in lockdown who lose 20 hours or more of work are eligible for $600 of support every week from the Federal Government while those who lose eight to 20 hours of work can claim $375.

Between March 2020 and June 2021, the RBA gave the banks $188billion in funding to provide cheap home and business loans via its Term Funding Facility that expired only three weeks ago.

CommSec is now forecasting the RBA will have to step in again to prop up home borrowers, even though the banks still providing home mortgage rates of 2 per cent. 

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