The time it took for the economy to go from a tremendous expansion with cascading unemployment to one of its deepest slumps on record is extraordinarily short.
It all had to do with the absence of a plentiful supply of diverse vaccinations. This shortage of vaccinations has seen the Delta variant of COVID-19 run through huge tracts of NSW, Victoria and the ACT. Lockdowns, job losses and business disasters are the human cost that will show up in a huge decline in September quarter GDP.
Australia is around 4 to 6 months behind most of the industrialised world in getting its people vaccinated.
This is because of the fatal error of the Morrison government in not contracting to buy sufficient vaccines in a timely manner. There is no denying this fact.
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Australians are left with the current absurd experience where scarce vaccinations are being directed away from Western Australia so that people in COVID-19 ravaged NSW and Victoria can be vaccinated more quickly.
As a result, the vaccination rate in Western Australia is lagging the national average and their government is copping criticism as a result.
Help is on its way
There is some comfort in the news that a few tens of millions of vaccines are due to arrive in Australia over the next few months.
But this is good news in the way a fire truck arrives at your burnt down house to extinguish the smouldering ruins when it could have been confined to the hotplates in the kitchen if they had arrived faster.
At some stage, perhaps around December 2021 according to the experts, a critical mass of at least 80 per cent of the population aged 12 years and over will be fully vaccinated.
Importantly, this 80 per cent threshold needs to be right across the country for a full opening up to occur. Western Australia, for example, is unlikely to open its domestic borders if its vaccination rate is 70 per cent while in NSW it is 85 per cent.
This is why the focus on opening should be focused as much on the lowest vaccination rates as well as the highest. Or rather it is why there needs to be a further push to get everyone aged 12 years and over vaccinated as quickly as possible.
In addition to the horrendous toll on mental health, education and family dislocation, the slow vaccination roll out has smashed the economy as various jurisdictions have reacted to the health crisis by locking down their economies.
Most forecasters are now expecting September quarter GDP to fall by around 3 to 4 per cent. Only a pedant would say this is not a recession as it almost certainly will be the second largest fall in quarterly GDP ever recorded – the largest was in 2020 – and hundreds of thousands of jobs will be lost and many businesses will close forever which will further compound the mental health of those impacted.
While there are hopes that the economy will rebound when the vaccination rates rise and lockdowns are wound back, it is unclear just how robust that recovery will be.
There are reasons to have optimism – after all interest rates are still very low, the household sector has plentiful savings and there is a positive wealth effect from the record high house and share prices.
There is no doubt a considerable amount of pent up demand with people eager to get out and about and ramp up their spending when these lockdowns end.
There are some economists now thinking that these positive influences will be largely offset by negatives.
Population growth is near zero, commodity prices are falling, housing construction is poised to weaken in line with the slide in building approvals and unlike 2020, during this recession there has been no additional policy stimulus.
There will be a bounce in the economy when lockdowns end and it is largely irrelevant to guess what the profile for GDP will be.
Much more important is having the government procuring sufficient vaccinations to ensure everyone is fully vaccinated as soon as possible. This is when forecasts for GDP and employment growth will be relevant.