Australia faces economic setback
SYDNEY: A hard lockdown in Australia’s secondlargest city will likely erase nearly A$5 billion of economic output over six weeks, slowing a broader national recovery and forcing the government to expand its already massive debt-funded stimulus.
Australia has been among the most successful countries in curbing the spread of the coronavirus but the lockdown in the state of Victoria and its capital Melbourne has hurt hopes of a faster and sharper economic recovery. “Our initial sense is that the re-opening reversal stemming from the lockdown will see the economy surrender some - but not all - of the better than expected trajectory,” Deutsche Bank economist Phil Odanaghoe wrote in a note.
Crucially, the shutdown will close cross-border trade and movement between Victoria and New South Wales, which collectively account for more than half of
Australia’s economy and population. The two states, which are separated by the Murray River and its lucrative farming districts, had previously remained open to each other even as other states closed their domestic borders. In 2019, the air passenger route between the state capitals of Sydney and Melbourne was the second-busiest in the world, according to industry analytics group OAG.
Westpac downgraded its forecasts for growth in Australia’s A$2 trillion economy to 4.2 percent contraction in 2020 from 4 percent previously. Westpac chief economist Bill Evans said “the events in Melbourne highlight the risks to this scenario around the containment of the virus; other shutdowns; and the inevitable savage loss in confidence were that to occur.”
To be sure, other states and territories are sticking to their planned re-openings, with Queensland, South Australia, Tasmania and the Northern Territory set to re-open their borders this month to each other and to New South Wales, the country’s largest state economy. That would be positive for domestic tourism, retail spending and business supply chain management.
Still, the Melbourne lockdown means Prime Minister
Scott Morrison’s conservative government could face a larger stimulus bill. Morrison has repeatedly said the temporary measures that is set to cost his government about A$160 billion ($111 billion), or 8 percent of GDP, will end in September.
However, he now faces increasing pressure to extend this support, which includes household income relief and provisions for workers to unlock some of their pension funds. —Reuters