Economic impact of lockdowns and interstate border closures on businesses across Australia

The most recent efforts to contain the spread of the novel Delta COVID strain in NSW and Victoria are pushing many local businesses, especially small ones, to their limits. Impaired interstate travel means that economic pain is being felt hundreds of kilometres away from regions currently in lockdown.

Various ballpark figures have been released on the economic impact of recent lockdowns. All are understandable bleak, as Sydney and Melbourne account for nearly 45% of the nation’s gross domestic product. 

There’s broad consensus amongst economists that GDP in the September quarter will go negative. Research from the ANZ Bank shows that spending in Sydney and Melbourne have dropped 30% compared to pre-lockdown levels. If spending continues at this lower level, GDP will fall by 3% in the September quarter. CBA and NAB are also expecting dips.

The most recent labour force data masks the severity of the current situation with the national unemployment rate surprisingly falling to 4.6% in July. But if we consider those who worked zero hours due to “no work, not enough work available, or stood down” as unemployed, then the national unemployment rate rate rose from 5.3% in May to 6.1% in July. All of this has occurred alongside a drop in the participation rate (i.e., people leaving the workforce). 

Figure 1: National unemployment rate with and without those who worked zero hours due to not enough work available

Source: ABS

As reported by In Queensland, Queensland Investment Corporation (QIC) Chief Economist Matthew Peter believes Australia could lose around 150,000 jobs with the unemployment rate expected to climb back to above 5.5% by Christmas. Mr Peter has also warned that, “The real impact of Delta has yet to show up and I’m afraid there is bad news to come”. 

In tourism-dependent regions that rely on interstate travel, staying out of lockdown hasn’t been enough for local businesses to avoid significant cash-flow concerns. Northern Queensland has reported early data points that provide some insight into the gravity of the situation.

Northern Queensland

Many tourism businesses in Northern Queensland are at their limit. Data from Cairns Airport shows the July passenger figures are down 12.5% from June. July data points only capture the beginning of the NSW, ACT, and Melbourne lockdowns, which are likely to extend into September. 

Figure 2: International and domestic passenger arrivals to Cairns Airport

Tourism Tropical North Queensland (TTNQ) estimates that 650 businesses are “hanging by a thread and may not have the cash flow to recover from 18 months without normal trade”. Roderic Rees, owner of Cairns Adventure Group, says that tourists from Sydney, Melbourne, and Adelaide make up 80% of his market – at the time of writing this article (i.e. 25 August 2021), Cairns is closed to people coming out of both Sydney and Melbourne. 

As reported by TTNQ, Cairns Chamber of Commerce CEO Patricia O’Neill said job losses were being felt across all industries, with “most businesses running at less than 5% of their normal revenues and the forward bookings are slowing with hotels down to 15-25% occupancy and more than $20 million in postponed events for July and August.” 

North Queensland tourism operators expect thousands of jobs to go by the end of the year, according to research from the Tourism and Transport Forum (TTF). Tourism in Cairns supported 15,750 full and part-time staff in the Cairns region prior to the pandemic, but 3,600 permanent staff were lost by July 2021, with an additional 3,000 redundancies expected in the coming months.

The uncertainty around lockdowns is impacting consumer confidence across Australia, although most strongly in New South Wales and Victoria. Data from the Queensland Tourism Industry Council (QTIC) shows that nearly 60% of interstate travellers are unlikely to cross the State border.

September could be the breaking point for many tourism businesses that can usually bank on a busy school holiday period. The TTF estimates that a disrupted school holiday season could be as costly as $4 billion in typical interstate tourism spending. Many see Australia’s two largest cities in lockdown over the September school holiday period, which will likely have a devastating effect on struggling tourism businesses around the country. 

Conclusion

The Australian economy is in for a difficult couple of months, particularly because financial assistance from the federal government is not as large this time around (i.e. there is no JobKeeper), and it is unclear when the New South Wales and Victoria lockdowns will end. 

 

This article was published on 25 August 2021 and was prepared by Adept Economics Research Officer Ben Scott and Director Gene Tunny. For further information please contact us via contact@adepteconomics.com.au. 

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