Victoria’s ultra-cautious road map to recovery could be the final hammer blow for many of the state’s small businesses which could force the federal government to extend another $20bn of stimulus efforts in its upcoming October budget, economists say.
AMP Capital chief economist Shane Oliver said Victoria’s easing of restrictions in effect extends the lockdown and could prove fatal for many small businesses unless there is another round of support programs from the government.
“We were working on the assumption that a more decisive opening would start occurring from the middle of September, while the real opening doesn’t occur until stage three, which is 28 October,” Dr Oliver told The Australian.
“As the RBA governor has said, when you have one lockdown, businesses scrape by on subsidies, savings and access to credit but by the time you have another one, the reserves have been depleted.
“Potentially, you’re going to need another $20bn worth of stimulus to support this otherwise the Victorian unemployment could be something like 13 or 14 per cent by December.
“If you don’t see more government support federally and at a state level we will run into a bit of a crisis for small businesses.”
Dr Oliver said the impact of Victoria’s slow road to recovery on the national economy would result in slower growth in the December quarter.
“The stage four lockdown has already knocked the Victorian economy so substantially so it’s not going to get worse than it is – it’s just the recovery we were expecting won’t happen until November, so therefore it risks slowing the national recovery from 2.5 per cent we were expecting to 1.5 to 2 per cent,” he said.
“As for national unemployment, we were looking at a 10 per cent rate in December and I probably wouldn’t change that at this stage, although it does slow the decline in unemployment we were expecting in the March quarter next year such that we will see it at nine per cent at quarter end.”
Obviously not positive
NAB chief economist Alan Oster said the pace of Victoria’s road map to recovery was “obviously not positive” for the national economy and that the December quarter was likely to see a small economic contraction.
“I think in the next six months, our economy is basically flat,” Mr Oster told The Australian, adding that the effects of imposing or lifting lockdowns can take a while to flow through to the broader economy.
“We would expect a small positive in September and a small negative in December. The reason we say that is when we look at our internal data, Victoria was OK up until about the second week of August, so the first half of the September quarter was better than people thought.
“While the impact of the lockdown was significant, it had an impact reasonably late and will spread over the next three to five months.
“We’re not going to be out of lockdown in a big way until the end of November, which means the peak level of unemployment will still be at the beginning of next year … I wouldn’t be surprised if it was around 10 per cent in the March quarter.”
Mr Oster also said that the conservative easing of restrictions in Victoria would encourage the government to spend in the October budget.
“I expect the government’s going to go with its ears pinned back and spend a lot of money in the October budget, including bringing forward tax cuts, delivering business investment allowances, they might bring infrastructure spending forward and may look at more funding of public housing,” he said.
“You will see more unemployed people, therefore the tax take will not be as big. But to me, I don’t care, you’ve got to spend the money: If you don’t spend the money, you have to wallow in the recession longer.”
Stronger December quarter
HSBC chief economist Paul Bloxham also expected a small amount of growth in the September – but expects a stronger rate of growth in the December quarter of 2.5 per cent.
“We haven’t adjusted our numbers because we’ve had in mind for a while that Australia was going to have a U-shape recovery, and that is because simply Australia wasn’t going for an elimination strategy and therefore, our recovery would be gradual,” Mr Bloxham told The Australian.
Mr Bloxham said that the recovery would emanate from increased personal consumption once restrictions are lifted and Victorians can spend some of the savings buffer built up from government subsidies at restaurants and cafes.
“Services spending is where we are likely to see the most improvements – cafes, restaurants, the businesses with a social aspect to them,” he said, adding that expansionist fiscal policy in the October budget would help.
“I think one of the elements is likely to be personal income tax cuts, we also think there is likely to be more incentives for businesses to pull forward their investments, and we think there will be a focus on infrastructure investment as well.”