Australia's stunning economic recovery trips on Delta variant, COVID-19 vaccine snags
SYDNEY - In Australia's largest city, construction has come to a standstill for the first time in living memory as a surge in COVID-19 cases puts Sydney under its toughest lockdown since the pandemic began. Tradespeople are out of work, with a knock-on effect seen on other sectors including retailers and cafes, as the Delta variant of the coronavirus darkens the outlook for Australia's US$1.5 trillion economy, one of the few to have successfully navigated the pandemic in 2020.
Now, some analysts see the economy shrinking this quarter, the first decline since June 2020, amid suggestions Sydney could remain in lockdown indefinitely. Treasurer Josh Frydenberg concurs, saying in a televised interview the September quarter will probably "be a negative". The sudden change in Australia's fortunes brought on by the Delta variant comes as policymakers in other developed countries begin to have second thoughts about rapidly reopening their economies.
"I don't think everybody appreciates how contagious this strain is and how different it is from past strains," said Gladys Berejiklian, premier for New South Wales of which Sydney is the capital city. Berejiklian, who controlled previous virus outbreaks without imposing widespread lockdowns, first locked up Sydney on Jun 26 and has since tightened restrictions banning construction activity, shutting down non-essential retail and urging employers to reinstate strict work-from-home policies.
The construction sector accounts for about 9 per cent of Australia's annual output, while retail makes up for more than 4 per cent. "Delta has beaten every single jurisdiction in the world," Berejiklian said, calling the variant a "gamechanger" and flagging some level of restrictions could remain in place until the vaccination rate goes up. Economists, who have been quick to downgrade estimates for Australia's economic growth, warn a longer lockdown will have dire consequences as New South Wales accounts for a third of the nation's output.
They also think the central bank could be forced to reverse a decision made earlier this month to begin tapering monetary stimulus from September. "The developments are concerning because things have not moved in the desired direction on the COVID-19 front, particularly in New South Wales," said Gareth Aird, head of Australia economics for Commonwealth Bank. New South Wales reported 124 new COVID-19 cases on Thursday (Jul 22), versus 110 a day earlier, a record for this year and the highest in 16 months despite weeks of lockdown.
"We cannot discount the scenario where the lockdown continues indefinitely until the proportion of the population vaccinated hits a level that policymakers deem acceptable to reopen the economy," Aird added. Hanging heavy on outlook is a botched-up vaccination rollout, with under 12 per cent of the population fully inoculated, together with recurrent leakage of the virus into the community from quarantine hotels.
The grim outlook sharply contrasts with the success Australia boasted only months ago, as the economy rebounded quickly to above pre-COVID levels after its first recession in three decades. Apart from early success in curbing the virus, massive government support had helped last year, though this time around, support payments are not as generous.