• Australia’s economy is set to shrink by 0.7% in the third quarter of this year, as a direct result of the Greater Sydney lockdown.
• Representing a quarter of the national economy, the stay-at-home orders could create up to 200,000 job losses, according to forecasts published by the Commonwealth Bank’s economics team.
• Early data shows it is already having an effect, costing $1 billion a week and scuttling consumer confidence and spending.
• Visit Business Insider Australia’s homepage for more stories.

Australia’s largest economic engine is idling for at least five weeks, with businesses and workers to bear the cost.

Greater Sydney’s lockdown, extended until at least the end of July, is expected to push the national recovery back further still, and unwind some of the growth hard-won over the last 12 months.

“The Australian labour market had exceptionally strong momentum at the end of 2020/21 but things of course have since taken a dramatic turn in New South Wales due to the lockdown of Greater Sydney,” Gareth Aird, Commonwealth Bank’s head of Australian economics, said on Thursday.

“A lockdown of up to 7 weeks in Greater Sydney could see a significant number of New South Wales workers stood down.”

Aird believes another extension could cost up to 200,000 jobs, ushering some 50,000 workers into the unemployment line. Such a result would create a “two-speed economy” between Australia and its largest state economy, according to Aird, slowing down the national jobs recovery.

Of course, much of the doom and gloom depends on just how quickly Sydney can get on top of its latest outbreak, largely contained for now to its south-west. If it can continue to suppress the virus and end the lockdown in the coming weeks, Aird says the negative impact will be “temporary”.

But it also underscores just how precarious Australia’s early recovery is, with Greater Sydney’s stay-at-home orders costing the national economy $1 billion every week.

Representing a quarter of Australia’s entire economy, the impact of the state lockdown is serious. CBA, assuming that a final two-week extension is yet to be announced, forecasts that GDP growth will fall by 1.4%, shrinking the Australian economy by 0.7% in the third quarter as a direct result.

The blow will be softened by federal and state support payments, and could pressure the RBA to continue buying up bonds for longer than it had intended, according to Aird.

The folly of economic data is it only captures the full picture in retrospect. The full impact on the workforce for example won’t be made apparent for months.

But there are already some troubling signs feeding through the economy according to Westpac’s confidence survey published on Wednesday.

Consumer confidence dipped 10.2% in New South Wales and 13.6% in Sydney when the lockdown was only in its first week.

“It seems likely that at the time of the survey many respondents may have been expecting a shorter lock-down period than is now being mooted,” Westpac chief economist Bill Evans said.

“Ominously, that suggests confidence in Sydney and NSW could fall significantly further if lockdown measures are unsuccessful or slow to act in containing the outbreak.”

The longer the duration of stay-at-home orders, the more pronounced those impacts on things like retail spending become and the slower the eventual recovery.

ANZ spending data shows just how sharply that is already being felt. Entertainment spending has almost halved since the end of May. Retail spending has fallen by nearly a third, dining by 45%, and travel spending has been hit harder than during Melbourne’s lockdown.

Crucially though, Sydney’s more relaxed business restrictions appear to have softened the blow, ANZ economists Adelaide Timbrell and David Plank said.

“More access to bricks and mortar retail in Sydney compared to the Melbourne lockdown reduced the lockdowns’ spending impact dramatically, and is a sign that physical restrictions – not economic scarring or consumer caution – are behind lockdown changes in spending,” the two wrote in a note.

But for businesses that don’t know when they will be able to properly operate again, it’s little comfort knowing there’s more pain on the way.

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