Australia has experienced its first economic downturn in a year since the closure of Sydney’s Reuters

By Swati Pandey

SYDNEY (Reuters) – Coronavirus blockage in Sydney’s most populous city (Australia) threatens to shrink the country’s economy in the third quarter, adding to the slow evolution of vaccines to headwinds.

The previous quarter’s decline in gross domestic product (GDP) would mark the country’s first economic downturn since June 2020, when a nationwide coronavirus blockade forced businesses to lower their shutters.

The $ 2 trillion ($ 1.5 trillion) economy is now higher than the previous pandemic level, with strong growth in employment, consumer spending, housing prices and building acceptance. The Australian central bank estimated year-on-year growth of 2.6% in the first half.

But more than 5 million Sydneyiders (one-fifth of Australia’s population), which happened under a cloud, have been ordered to stay home since late June to reveal the highly contagious Delta virus infection.

It is unclear how long the blockade will last, although authorities on Wednesday announced an “at least” two-week extension by the end of July, as the cluster caused nearly 900 infections.

“Despite a rapid recovery and strong domestic demand, the risk of a decline remains the same, with low vaccination rates in Australia, coupled with the highly transmissible Delta COVID strain, meaning the threat of blockages will increase uncertainty,” said Citi economist Josh Williamson.

Economists fear that the measures are not enough to eradicate the outbreak, as the authorities aim to achieve zero cases in the community before examining the removal of the restrictions and only 10% of the population is fully vaccinated.

Sydney’s blockchain economy costs about $ 1 billion a week, according to various economists ’estimates, most of which are expected to extend the cuts by mid-August.

That would mean an economic success of about $ 7 billion after potentially being blocked for seven weeks in the third quarter.

“The result of our estimates is that the national economy contract would see about 0.7% in the September quarter,” said Gareth Aird, head of economic development at the Commonwealth Bank of Australia (OTC).

The Australian Bank Reserve (RBA) expected growth of 2.25% in the second half of the year, which seems ambitious today, suggesting that it will remain an easy policy in the near future, although some other major central banks have begun to tighten.

The RBA cut interest rates three times last year to a record 0.1% and announced a massive bond purchase program to help lower borrowing costs.

Earlier this month, it announced that it would slow the pace of weekly $ 4 billion bond purchases from $ 5,000 billion today to September, with improvements in the job market.

But economists expect excessive success in the labor market from the blockade, as about 22% of the national worker is in Sydney.

The CBA now expects the RBA to maintain its government bond purchase program last week, according to a $ 3 billion forecast.

Economists, including the CBA, also see the risk of the RBA dropping its interest rates by mid-to-late or late 2023, now out of expectations by the end of 2022.

Market prices also fluctuated, with yields on three-year government bonds closing at 0.3% at around 0.5%. The Australian dollar is nearing its lowest since December 2020, at $ 0.7460.

Sure, some analysts expect a sharp rebound in overall activity after removing the restrictions and inserting more people.

“The blockade will be a big wake-up call for not only New South Wales but for the whole country,” said Westpace chief economist Bill Evans.

Sydney is the state capital of NSW, which accounts for about a third of Australia’s economy.

“We have entered this blockade with great force. Recovering what we saw with the previous blockades is very quick when the blockade is over,” Evans added.

($ 1 = $ 1.3399)