The risk of a protracted virus lockdown in the nation’s biggest city will have a major impact on the broader Australian economy, cooling the rapid recovery from last year’s recession.
There is no end in sight to the Sydney lockdown, now in its third week, as coronavirus cases continue to grow.
Rough estimates suggest the lockdown is costing NSW $1 billion a week.
JP Morgan economist Ben Jarman argues the Sydney lockdown will have a greater impact on the national economy than Melbourne’s long shutdown last year.
“The difference with Sydney’s lockdown is that the rest of the country, that is relatively unrestricted, is no longer in its initial rebound phase from the nationwide shuttering,” Mr Jarman said on Monday.
“That explosive surge, as most of the economy reopened, could easily carry a localised shutdown, even in a large city.”
As such, JP Morgan has cut its national economic growth forecast for the September quarter by 0.5 percentage points to 0.25 per cent.
However, as with other re-openings, the investment bank expects Sydney’s eventual recovery in the December quarter will see national growth of 1.2 per cent rather than 0.7 per cent.
Highlighting the extent of a city’s recovery from lockdown, an analysis by Deloitte Access Economics predicts Melbourne’s CBD economy will grow by 16.9 per cent or $5.9 billion to $41 billion by the end of 2021.
The analysis prepared for the City of Melbourne does not expect a full return to pre-COVID levels until late 2024.
Melbourne Lord Mayor Sally Capp said while the city was facing challenges such as work-from-home practices, there were also major economic opportunities on the horizon.
She pointed to the re-opening of Australia’s borders and the return of international students.
“I couldn’t disagree more with those who say the city will never recover,” Ms Capp said.
Housing is one sector that has benefited from the pandemic, buoyed by ultra-low interest rates and government support measures like the HomeBuilder grants scheme.
“Initially, the uncertainty caused by the pandemic and consequent economic downturn saw a three per cent fall in prices in the June 2020 quarter,” KMPG chief economist Brendan Rynne said.
“But once market participants became confident the pandemic would not result in a free-fall of home values, a combination of monetary and fiscal policies quickly began to push things the other way.”
Dr Rynne said nationwide house prices were four to 12 per cent higher than they would have been in the normal course of events, while units were 13 per cent above earlier estimates.