Economists say there is light at the end of the lockdown tunnel, but it all hinges on vaccinations

Sydney small business support

Source: Unsplash/Nico Smit.

As COVID-19 lockdowns drag on, questions are being raised about what effect this could have on the economy, on consumer confidence and on our pathway back to normality.

And while these Australian economists are not wholly pessimistic about the outcomes for small businesses, they both say the path away from uncertainty and back to economic growth is paved with vaccines.

The ongoing Sydney lockdown in particular has led to murmurs that the state may well be pushed into recession, and bring the whole country with it.

Speaking to SmartCompany, Stephen Koukoulas, managing director of Market Economics, says things are “looking grim”.

The Sydney lockdown will have a hugely significant effect on NSW, which accounts for about a third of the economy, he explains.

Add in Queensland’s lockdown, the 14-day closure in Victoria (which is still not out of the woods yet) and short lockdowns in South Australia and Western Australia, and a contraction seems inevitable.

We’re not even halfway through the quarter, he notes.

“Inevitably, we’re going to be seeing September quarter GDP decline.”

He makes a “semi-educated guess” that that decline will be around 1.5%, which would likely see unemployment increase from 4.9% in June to about 6% towards the end of the year.

As to whether that constitutes a recession depends on your definition, Koukoulas says.

Typically, a recession means a decline in GDP for two consecutive quarters, he explains.

“It’s not technically a recession,” he says.

“But for many, many people, it will feel like one.”

Independent economist Saul Eslake quotes AMP Capital chief economist Shane Oliver, who estimated the Sydney lockdown is costing something like $1 billion per week.

Taking all the other lockdowns into account, the total cost could be “of the order of $35 billion or so”, he says.

This brings him to a similar conclusion, saying: “That would turn what should have been an increase of real GDP in the September quarter of about 1% into what would probably be a decline of 1% to 1.5%.”

What does it mean for small business?

Eslake also says he doesn’t “much care for” the traditional definition of a recession.

But he adds that he doesn’t anticipate experiencing one, unless Sydney’s lockdown extends into October.

If what happened in Victoria is anything to go by, when consumers are released from lockdown they have a pent-up demand for the goods and services they couldn’t previously access.

So business tends to boom, at least for a while.

“While people won’t replace the coffees and the chardonnays and the gym sessions they didn’t have throughout lockdowns, the other things they would usually buy … they will rush out and buy.”

At the same time, he notes that businesses are now receiving support from the federal government that is comparable to JobKeeper.

That means we’re more likely to see businesses get to the other side of the lockdown, to take advantage of the uptick afterwards.

“It might be the straw that breaks some camel’s backs,” he notes.

But he doesn’t think that will be the norm. Again, in Victoria, the numbers weren’t quite as dire as many expected.

Koukoulas suggests, however, that the uncertainty around future lockdowns continues to pose a challenge, particularly for SMEs.

The issue for many is around the need to close suddenly, with very little notice, particularly when they deal in fresh produce.

Even when they’re able to open, that means they’re being a lot more cautious.

“It’s not just the lockdowns, it’s how you respond when things are ‘good’”, Koukoulas says.

Then, they’re competing with the big businesses that are either able to remain open, or have huge online presence and distribution networks.

We’ve seen a trend towards consumers being more willing to shop with their local small businesses, even if it means paying a little more.

But if there’s less money around generally, that behaviour comes into question.

It’s difficult to predict how people will react, Koukoulas says. Spending patterns are typically driven by price and availability, he notes.

At the same time, the continuing crisis means those who can afford will likely keep supporting local businesses.

“I’ve got a funny suspicion that trend will continue,” he says.

“At the end of the day, [consumers] can see the value of having the small business sector as part of their community.”

Getting the essentials right

There is also a question around consumer confidence, which has a direct effect on spending and therefore the economy.

This is an era defined by uncertainty, and nowhere is that more evident than in New South Wales, where debate continues to rage as to what constitutes an essential service.

This week, that debate has centred around the most Aussie of essential retailers: Bunnings.

Bunnings stores were open only for click-and-collect during Victoria’s lockdowns, but are allowed to remain open in Sydney, where they are considered essential.

While some continue to question the logic, others argue that stores like Bunnings are indeed essential for emergency repairs.

“I struggle to understand that so many seemingly intelligent people think that they’ll need a new loo seat or an s bend pipe with such urgency that every Bunnings must open for in store shopping,” one Twitter user said.

Another argued that those on a budget have little other choice.

At a press conference yesterday, Berejiklian skimmed over a question as to why these businesses are able to remain open, saying Sydney’s lockdown measures are “some of the harshest our nation has seen”.

She added that the list of critical workers is “very small”, and that non-critical retailers are “not supposed to be open”, before batting aside continued questions about Bunnings, and moving on to the next question.

Even as we emerge from the current lockdown situation, there will still be an element of consumer caution, Koukoulas predicts.

We will likely be hearing about new variants, we might need to develop booster vaccines, and until international travel is back up and running, we will still be facing reduced economic growth from immigration, and serious staff shortages.

Broadly, Koukoulas is optimistic about the economy in the medium-term, but “it’s so heavily dependent on vaccination takeup”.


It seems that time and time again, everything comes back to Australia’s vaccination levels.

“That’s going to be such a constraint on returning the economy back to full strength,” Koukoulas says.

Eslake notes that the Australian public has incredibly low tolerance for any COVID-19 case numbers, compared to other countries.

“If the chief health officer in the UK was able to stand up and say we had 190 cases today, they would be popping champagne,” he says.

But it also has incredibly high vaccine hesitancy, which he says the government has failed to address. This is not conducive to economic growth.

“We now find ourselves in a position where because of our public low tolerance … we have no alternative to lockdowns.”


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