Australian economy set to suffer more pain as Covid lockdowns keep shops and construction shut
Retail spending fell in June as lockdowns began to bite across Australia’s eastern seaboard, pointing to more economic pain ahead as the effects of harsher measures in Sydney flow through, including a temporary shutdown of construction.
Nationally, spending fell by 1.8% in a month that included Melbourne’s fourth lockdown and the first few days of Sydney’s lockdown, when non-essential retail remained open.
Credit card data released by the Commonwealth Bank shows spending fell last week in Sydney compared to the same time the previous year.
Spending across the nation is expected to fall further in the coming months as a result of stricter stay-athome rules in Sydney, a lockdown in South Australia and the extension of Victoria’s lockdown.
In announcements over the weekend, the NSW premier Gladys Berejiklian stopped many residents of western Sydney from working outside their local government areas and banned construction work from Monday until the end of the month.
The NSW secretary of the construction division of the CFMEU, Darren Greenfield, said between 350,000 and 450,000 people were directly employed in the industry in greater Sydney.
He said his members would get paid this week but from next week would be without income.
Some construction workers were unable to get the federal government’s $600 emergency payment because they had entitlements from employers they could draw on, he said.
“Some employers are paying, some are saying they can’t pay it, they’ll shut their doors.”
Greenfield said other workers have been forced to dip into redundancy balances held in an industry-wide scheme that is allowing withdrawals of up to $5000.
“I’ve said to the government, if this goes into a third week, it’s a disaster.
“Subcontractors will start going broke.”
Economists now expect gross domestic product to fall in the third quarter of the year.
Two consecutive quarters of falls in GDP mark a recession. Australia fell into recession for the first time in 30 years as a result of the Covid-19 pandemic in June last year.
Sarah Hunter, chief economist at BIS Oxford Economics, said GDP growth would be negative or at best flat.
“But I don’t think we’ll re-enter recession,” she said.
She said positive momentum in other parts of the country and the likelihood that lockdowns will at least ease in Victoria and SA should result in growth in the final quarter.
Stephen Wu, an economist at CBA, said the Australian economy had been able to bounce back strongly from previous lockdowns.
“But the speed and extent to which spending can bounce back depends on government support for incomes during this period,” he said.
“If incomes hold up, the lack of spending opportunities during lockdown will mean that households will add to their already large pool of savings, and this could be a tailwind to consumer spending once lockdowns end.”
He said the effectiveness of the Morrison government’s vaccine rollout would be a big factor.
Australia’s rate of full vaccination is currently last among Organisation for Economic Co-operation and Development nations, and on Wednesday the prime minister, Scott Morrison, conceded the program was about two months behind.
Asked about the effect of lockdowns on GDP, he said there would be “a significant impact in this quarter”.
“The economy in Australia is fundamentally resilient and strong,” he said.
He refused to consider a return to the jobkeeper wage subsidy program, saying it was designed to “solve last year’s problem” and would take too long to put in place.