Business The economy NSW budget

Economic ‘double punch’: Sydney’s lockdown

will have lasting legacy
By Matt Wade
July 31, 2021 — 12.01am

For our free coronavirus pandemic coverage, learn more here.

Sydney is not accustomed to recessions.

Prior the coronavirus pandemic it had not had a prolonged economic contraction for almost 40
years. A recent analysis of the city’s long-term economic performance by the consultancy SGS
Economics and Planning found Sydney even managed to keep growing through the deep
national recession of 1990-91. The city’s last really big downturn was in 1982-83.

But the coronavirus outbreak last year brought the long expansion to a halt. And now the long
winter lockdown of 2021 will make it a nasty double punch.
A lone person walks across Moore Street, Liverpool as Sydney bunkers down under tightened restrictions.
SAM MOOY

On Wednesday the Commonwealth Bank said it expects employment in NSW to plunge by

300,000 due to the lockdown, with most of the losses in Greater Sydney. A day later Westpac
forecast the NSW economy to contract by an eye-watering 7.8 per cent in the September
quarter.

NSW Treasury estimates the reduction of economic activity due to the lockdown is costing up
to $1.3 billion per week.

Because Sydney accounts for nearly a quarter of Australia’s economic output the disruptions
cause by its lockdown will drag on the whole economy.

Federal Treasurer Josh Frydenberg has acknowledged the possibility of a repeat of last year’s
national recession – defined as two consecutive quarters of contraction in gross domestic
product - if restrictions in Sydney fail to contain the coronavirus outbreak.

“I won’t be surprised if the September quarter goes negative,” he said on Thursday. “How we go
in the December quarter, which would need to be negative again if we were to go into another
recession, will largely depend on how successful NSW is in getting on top of this virus.”

Governments have resorted to the 2020 pandemic playbook in response Sydney’s lockdown and
shorter ones this month in Victoria and South Australia.

A big-spending federal-state emergency package was announced on July 13 to assist affected

businesses and workers. Only a fortnight later, when Premier Gladys Berejiklian revealed
Sydney’s lockdown would be extended until at least August 28, the emergency payments were
jacked up again.

The NSW Government alone has now committed close to $5 billion in economic support
measures since the current COVID-19 outbreak.
Sydney’s economy appeared to weather the early weeks of lockdown fairly well. But as new
restrictions were imposed, especially those on non-essential retail and construction, the
economic damage grew.

Analysis of debit and credit card use by ANZ showed spending across Greater Sydney last week
was almost 30 per cent lower than before the lockdown and at its worst level since the COVID-
19 pandemic began last year.

Separate tracking of household card use by the Commonwealth Bank told a similar story -
general retail spending in NSW last week was more than 30 per cent lower than the
corresponding period in 2019.

Measures of consumer confidence have also fallen steadily in Sydney amid the uncertainly
created stubbornly high daily COVID cases despite weeks of restrictions.

“Vaccines can get us out of this but it is not going to be fast and it
is not going to be fun.”
Economist Chris Richardson

Economist Chris Richardson from Deloitte Access Economics estimates an average of 25,000
jobs a week are being lost during Sydney’s lockdown. Of those, about 5000 to 10,000 probably
won’t be immediately rehired and will end up on the unemployment queue.

“Unemployment in NSW will likely continue to rise for the bulk of the period between now and
Christmas,” says Richardson. “Vaccines can get us out of this but it is not going to be fast and it
is not going to be fun.”

State Treasurer Dominic Perrottet insists the emergency payments put in place to support
Sydney’s firms and workers through the crisis will ensure a strong recovery.

“The economy rebounded strongly following the first shockwave of COVID-19 in 2020,” he told
the Herald.

“This showed the measures put in place by both state and the Commonwealth government
worked, but also that people remained confident about the future. Our aim during this current
Delta outbreak is to continue to keep people safe from the virus and at the same time protect
jobs and businesses so the economy can once again bounce back quickly on the other side.”

It seems those investing in shares and buying properties are confident Sydney will soon bounce
back.
NSW Treasurer Dominic Perrottet says Perrottet says we can’t simply expect things to go back to the way
they were in February 2020 before the pandemic. KATE GERAGHTY

As the city’s COVID crisis deepened this week the local share market set new records and
property prices reached fresh highs. Sydney’s media house price shot to a record $1.41 million
in the June quarter according to the Domain House Price Report, released on Thursday.
Domain’s figures show Sydney’s median house price rose 24 per cent during the past year, or
$272,887.

Economist Andrew Charlton said investors seem to be assuming the flood of government
support will prevent a sustained downturn.

“If anything I think businesses will look through this even more than last time because they
have more certainty it is going to be temporary,” he said.

Charlton also believes many firms will be reluctant to lay off workers because of the skill
shortages which became apparent earlier this year.

Most forecasters are expecting the sharp economic contraction during the three months to
September to be followed by a return to growth later this year.

But AMP Capital chief economist, Shane Oliver, says the confidence of consumers, businesses
and investors will be tested further as the lockdown drags on.

“The coronavirus pandemic has this unending ability to keep surprising us,” he says.

“You just can’t relax.”

Sydney’s winter lockdown underscores some of the changes to economic behaviour likely to be
a legacy of the pandemic including additional remote work, more flexible patterns of
employment and increased use of digital technologies.

These trends will in turn affect traditional job hubs like the central business district and help
reshape urban development including transport systems.

Sydney University transport economist Professor David Hensher, who researches remote work
trends, says Sydney’s lockdown will remind employees about remote work.

“For many people it worked out well and more importantly employers were very supportive of
remote work, and they remain very supportive,” he says.

Perrottet also says we can’t expect things to go back to the way they were in February 2020.

“COVID-19 has forced all of us to change many things and if there is a silver lining, it is the
opportunity this will provide to increase productivity and focus on reform that will help the
economy recover,” he says.

A recent report by economist Marcia Keegan of SGS Economics and Planning found Sydney’s
knowledge-based industries, well suited to remote work, weathered last year’s pandemic
disruptions relatively well. That includes two of the city’s biggest sectors - financial services
and professional services - which together account for more than 25 per cent of the city’s
economic output.

“A new rhythm has emerged in those industries where working from home is fairly easy,” says
Keegan.

But it was a different story for sectors unsuited to remote work including transport, retail,
construction, manufacturing, arts and recreation and accommodation and food services.
Activity in each one of those was badly disrupted last year.

That uneven performance across industry sectors will likely be repeated during the current
lockdown.

“We saw last year that industries such as accommodation, hospitality, travel, tourism and
service industries were particularly hard hit and had only partially recovered,” says Perrottet.

“Finding ways to continue to aid and boost their recovery will be important.”

Some regions of Sydney have also been hit much harder than others.

The economic consequences of the lockdown are likely to be disproportionately severe in

south-west Sydney where the lockdown has been most stringent due to the level of local
COVID infections. Restrictions in that region of the city were tightened further on Thursday
after NSW recorded its highest ever number of COVID-19 cases since the pandemic began. The
government also announced 300 Defence Force personnel would be deployed to assist police
enforce lockdown restrictions across the metropolitan area.

Many suburbs subject to the strictest lockdowns have relatively low incomes compared to the
rest of Sydney, and a high share of people reliant on social security payments. Fairfield council
area – a hotspot during this outbreak - had the lowest median household income among
Sydney’s local councils at the last census.

Australian Council of Social Service (ACOSS) chief executive Cassandra Goldie says
communities in south-west Sydney experiencing the harshest lockdowns need far more
support.
“The impact of this pandemic doesn’t affect
all people equally and clearly those who are
most at risk and who face the greatest barriers
to support are typically from low-income
backgrounds,” she says.

Dr Goldie warned that “as we speak”

economic inequality in Greater Sydney was
worsening.

“It has already been exacerbated while

everyone has been trying to stay safe and deal
with the virus,” she says.

“We are seeing a dramatic increase in income

and wealth inequality and unless we have
policies to directly arrest that acceleration of
inequality we will see the impacts of this for a
very long time.”
ACOSS CEO Dr Cassandra Goldie warned that
economic inequality in Greater Sydney was
worsening. ALEX ELLINGHAUSEN

Matt Wade

Matt Wade is a senior economics writer at The Sydney Morning Herald.