Westpac warns Victoria's economic plunge will be worse than initial lockdown shock

Westpac warns Victoria's economic plunge will be worse than initial lockdown shock

Westpac believes stage four lockdowns in Melbourne will plunge the Victorian economy to levels below the initial lockdown in March.

The major bank’s chief economist Bill Evans said the state’s inability to control the virus was expected to plunge economic activity to levels below the initial shutdown shock experienced in April and May.

Westpac is expecting Victoria’s economy to shrink by 9 per cent in September, which will bring the state’s total contraction for both the June and September quarters to 16 per cent.

Australia’s second largest bank noted the initial contraction in April and May from the pandemic caused activity levels to fall by 12 per cent.

“I have never seen a more uncertain economic outlook than we currently face both domestically and globally,” Mr Evans said.

“With the stage four restrictions now likely to stay in place for most of September, Victoria’s recovery will be delayed until the December quarter when we expect the 9 per cent loss in the September quarter to be partially reversed.”

The Victorian shutdown has also prompted Westpac to revise its unemployment estimations, with additional job losses expected to push up the unemployment rate to 8.8 per cent in the September quarter. At June 30, Australia’s official unemployment rate stood at 7.4 per cent.

Westpac anticipates the yearly unemployment rate is likely to exceed 10 per cent, which is in line with the Reserve Bank of Australia’s latest estimates.

“The job recovery in Victoria from October is expected to see job leakage with a portion of those employees who lose their jobs in August and September not being re-employed either due to restructuring or the insolvency of the employer,” Mr Evans said.

“As such we have lowered our outlook for employment growth over the remainder of the year, consistent with our slower growth recovery.”

Concerns of further outbreaks in New South Wales casts doubt on whether the state is able to retain a predicted 2 per cent positive upswing in the September quarter.

Mr Evans said a major outbreak in NSW was a “dominant risk” to national growth forecasts, potentially pushing down Australia’s estimated 2020 economic contraction of 4.7 per cent.

The bank is forecasting Queensland, South Australia, Tasmania and the Northern Territory will experience a 3 per cent rise in the September quarter and a 1.5 per cent increase in the December quarter.

Western Australia is expected to grow 4 per cent in the September quarter and 3 per cent in the December quarter off the back of a new mining boom fuelled by strong demand for commodities from China.