Economy set to take another kicking

Oh no. Another outbreak and another lockdown, in the state that can least afford it.

The Victorian Premier announced a lockdown on Friday afternoon in response to rapid transmission of a new virus variant.

Victoria hasn’t healed properly from last year’s injuries and now it is taking another kicking.

Victoria had three and a half good months, from the start of November to mid-February.

One good season where the southern state was free of community transmission of coronavirus.

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I live in Melbourne and I can tell you it took us a while to emerge from our shells after the stresses of last year. But as 2021 kept going, it was possible to believe the worst was behind us. We slowly began to relax. Restaurants were filling up, the public transport wasn’t so deserted any more, the weather was sometimes a bit sunny, and we began to feel good again. I even went to the tennis.

Victorians had been cautious for a long time but as time passed we were ready to unleash the economic power of Australia’s second largest state. We had a lot of catching up to do. The whole country was backing us, because Australia does best when all its states are performing well.

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Now this. Viral spread and a hard five-day lockdown complete with all the familiar features: face masks, a very short list of reasons to leave home, a 5km radius and the closure of all non-essential retail. It’s possible to hope the lockdown will only go for five days, but most Victorians, battle hardened, expect more.

Even a five-day lockdown will show up in the economic statistics, but a longer one will really hurt. Before lockdown, Victoria was still lagging the rest of the country. The whole country suffered last year, but Victoria suffered most, because while most states had one big lockdown,

Victoria had two. In the months of July, August and September most states were moving forward but as the next graphic shows, Victoria was still going backward.

That map comes from the national accounts, which show us the big picture of the state economy. The maps shows what was happening to the economy back to when Victoria was actually in lockdown. What do we see if we look at more recent data?

Despite being open over Christmas, Victoria had not caught up economically. The most up-to-date information the Bureau of Statistics provides is the number of people in payroll jobs. It shows Victoria’s labour market is still bloody and bruised from Covid. As the next chart shows, there are almost 6 per cent fewer jobs in Victoria than in March last year. That’s a huge shortfall.

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And the rate of hiring is not good either. In most states businesses have recovered enough that they are hiring more than in 2019. The number of vacancies advertised is higher now than before the pandemic. But not Victoria. As the next chart shows, Victorian businesses have been hiring people, but only slowly, with the number of advertised vacancies 6 per cent lower than in 2019

Businesses need confidence to hire. One reason they don’t hire is that they don’t know what the future holds. And sure enough for Victorian businesses, the future brought yet more viral cases and another lockdown.

Revenues will fall and they may face some tough decisions.

We know what will happen to Victoria in the next five days, because we’ve seen it before: a very sharp plunge in retail spending. IN the next graph, you can clearly see the impact of Western Australia’s recent lockdown on spending in that state: a 21 per cent fall that CBA analysts called “jaw-dropping.”

Five days might not sound like much, but it is enough to blow a big hole in monthly revenues of a business and turn that month from breaking even to a loss. And loss-making businesses won’t hire as much. This slows down the economic recovery of the already-weakened state of Victoria.

The outlook is especially rough because businesses know the end of the JobKeeper payment is less than two months off. The safety net will soon be whisked away. In the worst case scenario where the Victorian lockdown is extended close to that time, the federal government must surely think about extending JobKeeper.

This is not to say the lockdown is bad policy. A rampant virus is also bad for the economy. We covered all this last year and the verdict seems clear: locking down early and hard is wise. It is the best of a bunch of bad options. However you’re only forced to choose between bad options if your hotel quarantine system leaks. The Victorian system leaks rather more often than you’d hope. Someone isn’t doing their job properly. That is harming the whole state. And because all our states are interlinked, economically, it is not helping Australia either.

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