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Economists warn of W-shaped recovery if lockdowns persist

- July 21, 2021 2 MIN READ
economy recovery could be w shaped

Senior economists are warning Australia’s V-shaped recovery could quickly become a W if COVID-19 outbreaks are not brought under control and lockdowns persist.

With around half of Australia’s population and economy now subject to hard lockdowns, Commonwealth Bank (CBA) Group economists expect the GDP to contract by 0.7 per cent in the September quarter alongside a likely lift in the unemployment rate in July.

Lockdowns putting pressure on the economy

Ryan Feldsman, senior economist at CBA suggests prolonged and more-frequent lockdowns could pressure business balance sheets at a time when labour costs are already increasing.

“Of course, an acceleration of the vaccine rollout combined with labour shortages may encourage employers to retain their staff. However, Australia’s international border closures have reduced the supply of foreign workers, driving down the unemployment rate to 10½-year lows in June, as businesses find it increasingly difficult to find suitable skilled workers.”

Borrowing costs to stay low

With lockdowns extending in Sydney, Melbourne and South Australia, and no JobKeeper support on hand, small business owners are continuing to struggle. As such it’s likely that the Reserve Bank will keep borrowing rates low for some time to come.

Job demands remain stable

“Prior to the latest escalation in the health crisis, leading indicators of job demand were solid. Timely data from the National Skills Commission today showed that recruitment activity was elevated in June with 241,931 available positions advertised, just below the 12½-year high in May,” said Feldman.

“That said, the impact of Victoria’s fourth lockdown on the labour market was apparent in June with job vacancies down by 3,000 positions or 4.7 per cent. In fact, it was the first decline in national job ads since April 2020. Of course, in July all eyes will be on Australia’s biggest labour market – NSW – with the shutdown construction sector accounting for around 10 per cent of Sydney’s workforce.”

Retail spending decreases

Consumers have also backed off from spending, tightening their belts amidst the latest crisis. Retail spending tumbled the most in six months in June – down 1.8 per cent – as reduced mobility due to multiple lockdowns discouraged shoppers from heading out to shop. Sales fell by the most in Victoria (down 3.5 per cent), followed by NSW (down 2.0 per cent) and Queensland (down 1.5 per cent). Food retailing was the only component to increase, up 1.5 per cent in the month, as households hoarded essential items.

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