Australia’s stunning economic stimulus trips to Delta, vaccines addicted By Reuters

© Reuters. View of a construction site for a station in the Sydney metro, Australia, July 22, 2021. REUTERS / Sam Holmes


By Swati Pandey

SYDNEY (Reuters) – In Australia’s largest city, construction came to a halt for the first time in living memory as an increase in COVID-19 cases puts Sydney under its most difficult lockdown since start of the pandemic.

Traders are out of work, with a ripple effect on other sectors, including retailers and cafes, as the Delta variant of the coronavirus darkens the outlook for Australia’s economy by $ 1.5 trillion, l one of the few to have made it through the pandemic in 2020.

Now some analysts see the economy contracting this quarter, the first decline since June 2020, amid suggestions that Sydney could remain locked out indefinitely. Treasurer Josh Frydenberg agrees, saying in a TV interview that the September quarter is likely to be “negative.”

Australia’s sudden change in fortunes brought about by the Delta variant comes as policymakers in other developed countries begin to have doubts about the rapid reopening of their economies.

“I don’t think everyone appreciates how contagious this strain is and how different it is from past strains,” said Gladys Berejiklian, Premier of New South Wales, of which Sydney is the capital.

Berejiklian, who has controlled previous virus outbreaks without imposing widespread lockdowns, first locked up Sydney on June 26 and has since tightened restrictions banning construction activities, shutting down non-essential retail businesses and urging employers to restore strict work-from-home policies.

The construction sector accounts for around 9% of Australia’s annual output, while the retail trade accounts for over 4%.

“Delta has beaten all the jurisdictions in the world,” Berejiklian said, calling the variant a “game changer” and signaling that some level of restrictions could remain in place until the vaccination rate increases.

Economists, who quickly lowered estimates of Australia’s economic growth, warn that a longer lockdown will have dire consequences as NSW accounts for a third of the country’s output.

They also believe the central bank may be forced to reverse a decision taken earlier this month to start phasing out monetary stimulus from September.

“The developments are concerning as things have not moved in the desired direction on the COVID-19 front, particularly in New South Wales,” said Gareth Aird, Australian economics manager for the Commonwealth Bank. .

New South Wales reported 124 new cases of COVID-19 on Thursday, up from 110 a day earlier, a record for this year and the highest in 16 months despite weeks of lockdown.

“We cannot ignore the scenario where the lockdown will continue indefinitely until the proportion of the vaccinated population reaches a level that policymakers deem acceptable to reopen the economy,” Aird added.

A botched vaccination rollout, with less than 12% of the population fully vaccinated, as well as a recurring leakage of the virus into the community from quarantine hotels are weighing heavily on the outlook.

The bleak outlook stands in stark contrast to the success Australia boasted of just a few months ago, as the economy rebounded rapidly above pre-COVID levels after its first recession in three decades.

Along with early successes in tackling the virus, massive government support had helped last year, although this time around, the support payments were not as generous.


As a result, businesses and workers are increasingly frustrated with intermittent blockages.

National carrier Qantas warned this week that its staff could be sacked without pay if lockdowns continued for long periods.

Australia’s second most populous state, Victoria, is in its fifth lockdown and the smaller South Australia has also ordered its residents this week to stay home as cases of the Delta variant erupt as fires in forest.

Electronics giant JB Hi-Fi warned this week that its sales suffered until July.

ANZ’s high-frequency indicator index, which combines a variety of mobility and restaurant reservation data, is now in negative territory and at its lowest since October 2020.

For small businesses like Sydney-based Ianotti Electricals, long lead times mean thousands of dollars in lost business.

“I had to ditch the halfway bathroom and kitchen renovations. There was also new work that we were supposed to start, there isn’t,” said David Ianotti, whose the father owns the business. “I do work like finishing papers, cleaning my van, etc. but it’s unpaid work.”

Australia is not fighting the Delta variant alone.

A resurgence of cases around the world has rocked sentiment in global stock markets and clouded optimistic forecasts for economic growth as more countries reimpose restrictions.

“The Delta variant could fuel concerns about stagflation, which is a terrible combination of slowing economic growth and inflation at the same time,” said Nancy Davis, portfolio manager at Quadratic Capital Management, which owns 3, $ 2 billion in assets.

“Stagflation is an even greater risk for investors than inflation.”

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