Australia’s woes deepen as new lockdowns hit economy

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Scott Morrison
Scott Morrison

Australia’s Covid-19 nightmare worsened on Monday as its latest wave of lockdowns deepened the economic damage suffered by businesses.

Financial data firm IHS Markit’s latest snapshot of manufacturers and services firms for August - where a score over 50 signals growth - sank from 45.2 to 43.5 in the worst performance since May 2020.

The figures came as tighter restrictions were imposed on Sydney where masks must now be worn outdoors and evening curfews are now in place in 12 areas in a bid to stop the spread of the delta variant.

The latest shutdowns have hit the states of New South Wales and Victoria, accounting for around half of the country’s output and population, forcing prime minister Scott Morrison to review the struggling "zero Covid" strategy of closed borders and lockdowns.

Just 30pc of Australians over the age of 16 have been fully vaccinated but Mr Morrison warned that lockdowns “cannot go on forever”: “This groundhog day has to end, and it will end when we start getting to 70pc and 80pc.”

However, at the current pace of vaccinations Australia will take until December to hit 80pc while the economy flounders.

IHS Markit’s survey found manufacturers suffering their first reverse since June 2020, joining the service sector in decline as the delta wave worsened.

Jingyi Pan, its economics associate director, said: “Not only were demand and business activity hit, employment conditions also deteriorated, with private sector staffing levels falling for the first time since October 2020.”

Australia’s woes also prompted analysts at Goldman Sachs to slash its growth forecasts as the latest lockdowns trigger a deep economic contraction in the current quarter and weigh on the eventual rebound.

The investment bank predicted a 2pc slump in GDP between July and September due to lower household spending and building activity, before a slower 1.8pc recovery in the final quarter of the year.

The Reserve Bank of Australia announced the tapering of its quantitative easing programme in early July, before the delta wave spread.

Goldman, which cut its Australian growth estimates for this year from 4.7pc to 4.2pc, warned risks to the economy had “increased considerably” since early July.

The bank said: “Our base case is for the QE taper to proceed in September as scheduled but we continue to see a strong argument for the RBA to delay any (even if modest) withdrawal of policy support.”

Australia has reported almost 45,000 cases and fewer than 1,000 deaths.

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