Extended Covid lockdowns threaten to push Australia into double-dip recession

Independent economist Saul Eslake believes Australia could face a technical recession if shutdowns extend until November, when the nation is expected reach its 70 per cent vaccination target which is supposed to bring an end to hard, long lockdowns.

A technical recession is two consecutive quarters of negative growth, however Mr Eslake believes the term is arbitrary and argues Australia is already facing real-time economic downturn.

Australia's first recession in 30 years was caused by falls in the December 2019 and March 2020 quarters, and only occurred because of the impact of the 2020 Black Summer bushfires.

The initial virus lockdown last year caused only one quarter of negative growth, despite that quarter seeing a plummet of 7 per cent.

"Whether we have two consecutive quarters of negative growth or not, is not the be all and end all of whether we've had a recession," Mr Eslake told The Canberra Times.

"My argument would be that we are in recession now.

"Would you really have said [we're not in recession] because we only had one quarter of negative growth, even though it was 7 per cent? A bigger contraction than any of the recessions we previously had.

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"If [lockdowns] were to continue into November, then, we almost certainly will have a second quarter of negative growth."

Mr Eslake's view coincided with the release of the minutes from the Reserve Bank's latest meeting on monetary policy, which flagged that the biggest uncertainty to the economy was the health concern surrounding the virus.

The RBA in its minutes said a gradual reopening of the economy was likely to occur due to the high transmission of the Delta variant.

It also noted vaccinations were alleviating the future economic uncertainty.

"The vaccination program would assist with containment of the virus and longer-term economic recovery," the RBA said.

"Although uncertainty had increased, the central scenario was still that the Australian economy would grow strongly again next year."

Mr Eslake said the economic downturn, which he said was a "real recession", would not have needed to occur if the federal government had secured more vaccine and prioritised the rollout.

"The recession we had last year, to echo the words of [former prime minister Paul] Keating, was one we had to have," he said.

"This recession, the one that we're in now, by contrast, is not one we had to have.

"This sounds harsh ... but I think it is one that results from bad choices that were made by the federal and NSW governments.

"Since the turn of the year, there has been an alternative strategy to lockdowns and that is to vaccinate as much of your population as quickly as you possibly can ... and we chose not to pursue that strategy."

The Tasmanian, who used to be the chief economist of ANZ, believes GDP is likely to fall by 1.4 per cent for the September quarter, while the RBA anticipates a drop of about 1.5 per cent.

The consensus at NAB Economics is GDP will fall three percentage points to a position of minus 2 per cent.

Mr Eslake did note the federal government's fiscal response for workers and businesses impacted by lockdowns was appropriate.

"What they're doing is not as pervasive as JobKeeper, but the government learned that JobKeeper was open to rotting," he said.

"So what they're doing now is better targeted, but I think will be no less effective."

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