Australia: Victorian economy hardest hit by coronavirus fallout as immigration dries up

While Australian approach to immigration is more restrictive than Canada’s, Canada’s economic and immigration recovery may also be longer than expected. But like all projections and estimates, time will tell.

Australia has been one of the more successful countries in addressing COVID-19, with only 311 infections and 4 deaths per million (July 1):

Australia’s second-most populous state was poised to take the biggest economic hit from the COVID-19 pandemic even before a dramatic spike in cases over the past fortnight forced renewed shutdowns in large parts of Melbourne.

The latest business outlook from consultancy Deloitte Access Economics tips Victoria to suffer the biggest fall in gross state product in the 2020-21 financial year, which just began.

Deloitte predicts Victoria’s domestic economy will shrink 1.6 per cent this financial year, also leaving it with the worst economic performance in the nation this calendar year.

“The largest downturn is likely to be felt in Victoria given its current spike in cases, as well as that state’s dependence on migration and on foreign students in an age of lockdowns and closed borders,” Deloitte’s Chris Richardson said in the report.

Most state economies are expected to shrink around 3 per cent this year due to the pandemic.
Most state economies are expected to shrink around 3 per cent this year due to the pandemic.(Supplied: Deloitte)

Mr Richardson said Victoria’s economy was particularly vulnerable due to the latest wave of coronavirus cases, which would see the state cut off from the rest of the country, once the border with New South Wales closed from Wednesday.

“Victoria has had the strongest COVID restrictions across the country and now, with the prospect of a second wave returning and the reintroduction of restrictions, the state is likely to see some prolonged misery in particularly hard-hit sectors,” he noted.

Melbourne’s construction sector facing ‘severe setback’

While travel-related sectors, such as tourism and education, and hospitality will be the most immediate casualties, Mr Richardson says the medium-term effects will be felt acutely in the state’s previously booming construction sector.

“Victoria’s construction sector was already showing signs of weakness before COVID hit,” he wrote.

“With high levels of uncertainty, and an unexpected drop in population growth, construction is likely to suffer a severe setback over the coming year.

“Demand for office and apartments in Melbourne, including those projects that are halfway through, are being reconsidered as the density of Melbourne’s CBD is now less attractive across people’s daily lives.”

Mr Richardson added that one silver lining for Victoria’s construction sector was that there was a lot of planned infrastructure investment, something which would also be seen in the second-most pandemic-affected state, New South Wales.

It will particularly target transport projects in Melbourne and Sydney.

However, that investment is not expected to wholly make up for the loss of overseas arrivals.

“Other things equal, keeping tourists, students and migrants away for longer means that Australia’s economy will be some 4 to 5 per cent smaller than it could otherwise be,” Mr Richardson said.

Deloitte observed that New South Wales was similarly affected by the closure of international borders, with the state usually receiving more than a third of migrants who arrive in Australia from overseas.

However, in recent years, New South Wales has been losing existing residents to other Australian states, notably Victoria, a trend which Deloitte expects to have paused during the crisis, especially due to hard border closures.

The state’s comparatively better success in containing the virus so far has Deloitte tipping just a 0.1 per cent fall in New South Wales gross state product this financial year, as domestic activities continue to return to normal.

Some other states are expected to see a rise in their domestic activity — again excluding the large drop in exports, which includes foreign tourism and education — while the two territories are tipped to perform best.

“The lift in LNG-related exports from the Ichthys project will protect the Northern Territory, while its strong public sector base is a very welcome anchor in the storm for the ACT,” Mr Richardson explained.

Even though their domestic economies are expected to take a smaller hit than the bigger states, Deloitte is warning South Australia and Queensland will suffer the nation’s highest unemployment rates, above 9 per cent, while Western Australia and Tasmania will also have a weaker jobs market than Victoria.

Deloitte tips unemployment to be at its lowest in the ACT (5.7 per cent) and New South Wales (7.5 per cent).

COVID-19 infections ‘best’ economic indicator

Overall, Deloitte is forecasting a relatively fast recovery from the pandemic, tipping only a 0.4 per cent decline in GDP nationwide this financial year, following on from a 0.1 per cent fall in 2019-20.

It is predicting robust national economic growth of 5.3 per cent the following financial year, 2021-22.

However, this forecast is based on Australia keeping COVID-19 cases suppressed, a vaccine or good anti-viral treatments being widely available by the middle of next year, and international travel gradually recommencing, starting with trips to New Zealand at the end of this year and expanding to a general reopening of Australia’s borders by the end of next year.

Mr Richardson said a continued and widespread spike in cases would lead to much worse economic outcomes.

“That’s why opening up if virus numbers aren’t under control is risky.

“And, in a volatile environment, it is also why the best leading indicator of how an economy will perform is how that nation is going in its fight against the virus.”

Source: Victorian economy hardest hit by coronavirus fallout as immigration dries up

About Andrew
Andrew blogs and tweets public policy issues, particularly the relationship between the political and bureaucratic levels, citizenship and multiculturalism. His latest book, Policy Arrogance or Innocent Bias, recounts his experience as a senior public servant in this area.

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