A second pandemic recession could be on the cards if the vaccine rollout wavers, economists warn

A second pandemic recession could be on the cards if the vaccine rollout wavers, economists warn
(Photo by Brook Mitchell, Getty Images)
  • Australia’s economy is likely to contract by more than 2.7% in the September quarter as a result of current lockdowns and restrictions.
  • While the country’s vaccination rate has hit 20%, economists have warned it must keep pace to protect against a second pandemic recession.
  • Modelling from the Doherty Institute has recommended low-level restrictions that do not extend to lockdowns will be the best way to manage the virus once vaccinations reach 70%.
  • Visit Business Insider Australia’s homepage for more stories.

Australia’s race to vaccinate its population faces even more urgency, with economists warning a second pandemic recession as a result of current lockdowns is not off the cards.

While vaccination rates have accelerated, with just over 20% of the population vaccinated, experts say the rollout may not be moving fast enough. 

Greater Sydney has entered their eighth week of lockdown amid growing expectations stay-at-home orders could extend into October, with the entirety of NSW in lockdown as of Saturday. 

Melbourne’s lockdown has been extended and harsh restrictions have been put in place, and restrictions have been extended in the ACT and Northern Territory.

Based on COVID-19 management guidelines modelled by the Doherty Institute, and at vaccination rates of 70%, Treasury estimates on the direct economic costs showed that the “lowest-cost strategy” was to use “low-level restrictions to minimise cases, without more costly lockdowns”.

It found that with seven in 10 Australian adults vaccinated, managing the virus is likely to cost around $200 million a week on an ongoing basis, with a drop to $140 million a week once vaccination rates hit 80%.

However new economic modelling suggests the country’s vaccination push may not outrun the risk of recession. 

Deloitte Access Economics released projections showing that national GDP in the September quarter was expected to contract by more than 2.7% $14 billion, led by an 8.6% collapse in output in NSW.

It also projected at least 300,000 job losses, as government figures show more than 1.2 million Australian workers have received disaster payments to offset a loss of hours, with the bulk in NSW. 

Chris Richardson, partner at Deloitte, said the “jury is out” on whether vaccination rates will be high enough in time to avoid a second recession.

Richardson said timing a potential bounce out from the latest restrictions remained dependent on how many Australians were vaccinated.

“Every economic forecast is a vaccination forecast.” he said, adding that currently vaccination rates were a marker for an “improved outlook for the economy.” 

“Every vaccination that happens now rather than in three months’ time is an improvement for the economy. When you are getting vaccinated you are not just saving lives, you are saving jobs,” he said.

Warren Hogan, a former ANZ chief economist, said lockdowns as a result of the Delta variant represented a “pause”, rather than a reversal in the nation’s comeback from the 2020 downturn.

Hogan said that if Australia continues on its current weekly vaccine rollout pace of between 1.8 million and 2 million doses for the next two months, with restrictions easing from October, the economy should recover by the end of the year. 

This should “start to see the economy come back in November and December, and ensure you get the bounce in Q4”, he said. “This is our W-shaped recovery.”