News that I and many others were effectively in lockdown from Friday was depressing. It got even more depressing when the whole of Sydney and surrounds was put into a two-week lockdown on Saturday. And I am not in Victoria which has had it even worse over the last year, and I can only imagine how bad this must be for those looking forward to school holidays. Or far worse still for those with businesses dependent on people coming together. And now Perth & Darwin are in lockdowns too.

With Sydney and surrounds having around 6.6 million people and about 25% of Australian GDP we estimate a hit to national economic activity from the two-week Sydney lockdown of around $2 billion (or 0.1% of GDP). Perth’s four-day lockdown will cost another $200m and Queensland’s three-day lockdown another $300m. And this follows around a $1.5bn hit from Victoria’s two-week lockdown from late May.

With ongoing lockdowns, it seems like ground hog day. Some even think the lockdowns themselves are the problem – that Australia has become paranoid, going into lockdown & shutting borders at the whiff a new case, locking out the rest of the world and becoming a “lost kingdom of the South Pacific” – imposing a great cost on the economy all to control what some think poses no or little risk for most, or is just a bad dose of the flu.

Australia has made some mistakes. High on the list is: the slow rollout of vaccines; the management of the returned traveller quarantine system; the poor treatment of Australians overseas (particularly those recently in India); and we arguably have been too slow in relation to starting some lockdowns (in Victoria mid-last year and recently in NSW) risking longer lockdowns. 

But gloomy as it all seems, Australia’s approach has led to relatively less deaths and a stronger economy. And being early in the vaccination process – both globally and in Australia – it’s still too early to simply relax controls. This note puts it into perspective and what it means for investors…

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Dr Shane Oliver, AMP Capital