Engine room in drive to survive

RESERVE Bank governor Philip Lowe has warned “there is a limit” to how long small businesses can survive lockdown restrictions, while the economy is on track to “contract significantly” over the three months to September.

In his annual address to the Anika Foundation on Tuesday, Dr Lowe said many small and medium-sized businesses were facing “very difficult conditions”, with many in “wait, survive and see” mode.

Meanwhile, Dr Lowe said the economy was likely to contract at least 2 per cent in the September quarter, and possibly “significantly” more, before returning to growth in the December quarter.

He said it would not be surprising to see unemployment in the high 5 per cent range for “a period of time.

The comments came as new figures from the Australian Banking Association show hardship cases are rocketing as businesses and homeowners struggle through lengthy lockdowns, setting alarm bells ringing for the nation’s economic recovery.

Hardship assistance to under-pressure borrowers almost tripled over the past month, with 57,000 customers now having reached out to their lender for help, up from 20,000 the month prior, according to the Australian Banking Association.

Home loan deferrals close to doubled over the same period, jumping from 14,500 to more than 27,000, while deferred business loans surged from 600 in August to more than 3500 by mid-september.

The bulk of hardship and deferral cases are still coming from NSW, where residents of greater Sydney have been locked down since June.

But Dr Lowe said vaccinations provide “a clear path out of the current difficulties” and that the nation “will return to a stronger economy next year”.

“Delta is delaying progress, but it is not expected to derail our resilient economy,” he said.

While larger firms are managing the Delta disruptions relatively well, the central bank boss underlined how “many small and mediumsized businesses are facing very difficult conditions”.

Dr Lowe acknowledged that having to live with some level of Covid could make for a slower recovery as restrictions eased, but said other countries had successfully reopened with some level of disease, which was a hopeful precedent for Australia.

“This experience suggests that having Covid-19 circulating in the community does not prevent a quick bounce back in spending, provided the population is highly vaccinated,” he said.

Meanwhile, business confidence figures showed some resilience in the face of Covid lockdowns last month, according to NAB’S monthly business survey.

Business conditions and confidence improved slightly, but the latter remained well into negative territory. It reflected a sharp deterioration in Victoria and more generally, the degree of uncertainty in the economy as lockdowns persisted and the timing of a full reopening was unknown.

NAB chief economist Alan Oster said the deterioration in confidence and conditions had not been as severe as in early 2020.