Economists are warning that any further extension to the Greater Sydney lockdown could see the national economy contract in the September quarter, bringing Australia's rapid recovery to an abrupt halt.
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The NSW lockdown will now stretch to five weeks after the state government on Wednesday extended restrictions until the end of July.
There is no guarantee it won't be even longer given case numbers are still close to 100 a day.
Treasurer Josh Frydenberg says Treasury has estimated the NSW lockdown is costing the economy about $700 million a week.
"No one is dismissing the significant impact it will have on confidence and investment in terms of growth, and even potentially labour market outcomes," the treasurer told the ABC.
But Commonwealth Bank head of Australian economics Gareth Aird puts the damage at $1 billion a week, a reduction of 0.2 per cent from quarterly national growth given Greater Sydney contributes 25 per cent to the economy.
A lockdown of seven weeks would therefore subtract a hefty 1.4 per cent from the September quarter calculation.
"Such an outcome on our figuring would see the national economy contract over the September quarter - by around 0.7 per cent," Mr Aird said.
New research also shows confidence in NSW could fall further, a warning to retailers, while a separate report found a growing number of Australians believe it will take more than a year for life to return to normality.
The July Westpac-Melbourne Institute consumer sentiment index rose 1.5 per cent as strong gains in Victoria and Western Australia offset a steep 10.2 per cent drop in NSW, including a 13.6 per cent tumble in Sydney.
Despite this fall, Westpac chief economist Bill Evans notes that levels of confidence in NSW indicate optimists continue to outweigh pessimists.
"It seems likely that at the time of the survey (July 5-9) many respondents may have been expecting a short lockdown period," Mr Evans said.
"That suggests confidence in Sydney and NSW could fall significantly further if lockdown measures are unsuccessful or slow to act in containing the outbreak."
A separate survey by the Australian Bureau of Statistics found just over a quarter of Australian households believe it will take more than a year for life to return to some normality after the disruptions from the pandemic.
That compares with 14 per cent when asked last year, while one in six felt life would never return to normal.
Still, while the number of firms shutting up shop for the last time is on the rise, the business landscape is in a better position than the outlook a year ago when the economy was deep in recession.
The latest CreditorWatch business risk review shows the number of businesses going into administration rose by 23 per cent in the June quarter, but that is still 21 per cent lower compared to a year earlier.
But CreditorWatch chief executive Patrick Coghlan warns the extended lockdown in Sydney is a stark reminder of the economic vulnerability of some industries.
Australian Associated Press
