Dr Brendan Rynne, KPMG Chief Economist, assesses the impact of Victoria’s stage 4 measures
Yesterday’s announcement of a stage 4 lockdown in my home state of Victoria took us yet further into new territory.
Given the lack of precedence it is extremely difficult to make accurate economic forecasts but our best assessment is that it will mean a 2.5 percent drop in Gross State Output in August – which equates to a loss of $830m.
The best comparison is with New Zealand, which had its own stage 4 and provides some guidance if you compare our own stage 3. The primary difference relates to the job losses in the “Goods Producing” sector – manufacturing, utilities and construction – which fell 10 percent at the peak of their stage 4 whereas our equivalent sectors only fell by 5 percent in stage 3.
If we look at the employment structure in Victoria there is probably around 200,000 jobs that are in the “goods producing” sectors in Victoria that are now caught up in stage 4 that weren’t really directly impacted in stage 3 – of which around half can’t work from home.
About 75,000 are manufacturing and there’s possibly around 50,000 construction jobs that may end up not working by the end of the shutdown.
However, not all of these jobs are immediately “at risk” – construction will wind down, and therefore the jobs risk is probably towards the end of the next 6 weeks rather than at the beginning – so the fear is that September could be worse than August if the sector runs out of work in the next 4 weeks (as they aren’t able to start new jobs).
There are some countervailing factors – some of the sectors which have already gone through stage 3 lockdown Mark 1 and Mark 2 have been able to “pivot” and innovate, and the likelihood is we will still see jobs slowly returning to those businesses which are able to reorganise and meet the changed market demand.
Conversely there is also a risk that some businesses may see this new lockdown as the final nail in the coffin and decide it’s not possible to keep extending the pain.
Remember, the rest of the country is continuing to rebound from the first lockdown – the RBA today re-iterated that a recovery is under way in most of Australia.
So to the extent that Victorian businesses can continue to participate in meeting the demand of the national economy by supplying goods and services from their scaled back operations, then the negative local economic impact of stage 4 may be dampened.
Another important point to note for the Federal Government is that the stage 4 lockdown in effect takes Victoria out-of-sync with the rest of Australia, which is likely to create problems for national consistency in dealing with issues like rent relief, loan supports and the timing of changes to national support payments like Jobseeker and Jobkeeper.
There have been more dramatic forecasts than KPMGs of the effects of stage 4 – and clearly Australia will now have a shallower recovery than it would have done – but we still assess that the economy will be back to 2019 levels by the end of next year.