Posted: 12 Oct. 2021 5 min. read

Business Outlook: recovery delayed, not derailed

Deloitte Access Economics’ latest Business Outlook suggests that while Delta strain outbreaks of COVID-19 and associated lockdowns have delayed Australia’s economic recovery, a strong post-pandemic recovery is still on the table.

The impact of lockdowns through mid-to-late 2021 has clearly caused great economic harm – we estimate, for example, that the economy may have shrunk by almost $18 billion in the September quarter. Many businesses have been unable to operate, those businesses’ employees have been unable to work, and confidence has taken a hit.

But 2020 showed us that the Australian economy and labour market do have the capacity to bounce back. And this time around we have a weapon in our arsenal that we didn’t have in 2020 – vaccines. Vaccinations are the best possible stimulus for our ailing economy – and forecasts for everything, from wages to unemployment and hospitalisation to haircuts, depend on vaccinations.

That’s why, despite the current economic pain, we’re still forecasting a substantial return to growth. This is demonstrated in the chart below, following a forecast 3.5% hit to September quarter activity.

Quarterly growth in Australian economic activity (real GDP)

Heads of M&A Survey 2021
Source: Deloitte Access Economics, Business Outlook

But the economic recovery won’t be even across the board. The regions and sectors hardest hit by the pandemic will have their recoveries delayed compared to the average.

The sectors most directly impacted by lockdowns (hospitality, arts & recreation, and transport) still bear the scars of 2020. They’re also the most exposed to tourism, delaying their ability for a full force recovery until international borders are open once again.

At a state and territory level, those that have remained most shielded from the pandemic thus far will continue to benefit in terms of their short-term economic growth. But they should also vaccinate fast, ready for the day Delta breaks down the door, or for when they open their borders to the rest of Australia and the world. 

Forecast economic growth for 2021-22 by state and territory

Source: Deloitte Access Economics

The September quarter of 2021 will likely be a horror for the Victorian, ACT, and especially New South Wales economies, dragging down 2021-22 economic growth. But once vaccination rates enable the lifting of lockdowns (and News South Wales has hit that button), they will all experience a return to growth.

The success thus far of shutting out COVID in Queensland, Western Australia, South Australia and Tasmania is forecast to see each of these states experience robust economic growth through 2021-22.

South Australia, for example, is benefiting on the ‘people power’ front, with more interstate migration going its way than it is used to seeing, and Queensland is also attracting interstate migrants. But it has a problem – not enough vaccines in arms. The Sunshine State’s great success in shutting out COVID is delivering big economic benefits, but those successes are fragile, and given its large tourism base, Queensland will remain at greater risk of the Delta blues until its vaccine hesitancy and complacency are finally overcome.

More about our authors

David Rumbens

David Rumbens

Partner, Deloitte Access Economics

David is a macro economist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labor market analysis.  David is a regular commentator on macroeconomic trends, and prepares a weekly economic briefing newsletter.

Emma Grey

Emma Grey

Manager, Deloitte Access Economics

Emma is a Manager with an econometric background, working in Deloitte Access Economics’ Macroeconomic Policy & Forecasting team. Since joining Deloitte Access Economics in early 2016, Emma has applied macroeconomic analysis and econometric techniques to a range of subject matter including social policy, labour markets, the construction sector, international trade and tax policy. She has developed multiple forecast models and currently runs Deloitte’s national macroeconomic forecast modelling. Emma also frequently conducts distributional modelling and inequality analyses.