Cumulative economic impact of COVID-19 on states and territories

Estimating the cumulative impact of the pandemic on the Australian economy, comparing it to it’s pre-covid trend growth by state and territory.

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Released
22/12/2022
Source
Australian National Accounts: State Accounts, 2021-22 financial year

Introduction

The COVID-19 pandemic has had a major impact on the economic growth of Australia. The ABS article “Economic gains and losses over the COVID-19 pandemic” released as part of the Australian National Accounts, June quarter 2022 estimated the cumulative impact of the pandemic on the Australian Economy, comparing it to its pre-covid trend growth. This article builds on this work, examining the impact of the COVID-19 pandemic at a state and territory level based on estimates published in Australian National Accounts: State Accounts, 2021-22 on November 18, 2022.

Method

The “pre-COVID trajectory” presented in this article has been calculated using the average of the annual growth rates from June 2014 to June 2019. This growth rate has been used to project estimates over the COVID-19 impacted period.  The differences between the pre-COVID trajectory and the realised figures have been summed for June 2020, June 2021, and June 2022, to estimate the cumulative impact of the pandemic on the estimates.

Note: projections for the different components of Gross State Product (GSP) have been calculated independently from GSP itself. This means that the “pre-COVID trajectory” estimates are not additive and do not sum to the GSP “pre-COVID trajectory” estimate. As a result, the cumulative gains or losses from individual components will not sum to the cumulative gains or losses of the aggregate figures.

Analysis

The analysis below examines the components of the GSP Expenditure and Income measures, to demonstrate how the cumulative losses (and gains) differed across the different regions in the Australian economy. Household income accounts and the resultant net savings are also analysed to explore the direct economic impact of the pandemic on households at a state/territory level.

New South Wales

Gross State Product

New South Wales GSP has grown below its pre-covid trajectory over the last three years. The impact of the nation-wide lockdown in March 2020 was a major contributor the negative growth experienced in 2019-20 while the state-wide lockdown that occurred in response to the Delta outbreak in late June 2021 has resulted in subdued growth in 2021-22 relative to the previous year.

The cumulative impact of COVID-19 on the New South Wales economy is estimated to be $74b compared to its pre-pandemic trajectory.

GSP Expenditure

Household Consumption

Household consumption was the major contributor to the cumulative loss in NSW’s GSP. The drivers of the fall were Hotels, cafes and restaurants and Transport services reflecting the changes in consumer behaviour as a result of lockdowns, density restrictions and border closures.

Capital Formation

 

Private capital and public capital both contributed to the cumulative loss. The impacts of restrictions on construction activity due to lockdowns and supply-chain issues due to overseas lockdowns contributed to losses across most capital components. The exceptions to this were Ownership transfer costs which had a cumulative gain over the period, reflecting the strong housing market over the last three years. Alterations and Additions also experienced a gain, in part due to the Commonwealth government HomeBuilder initiative.

Government Consumption

Government consumption partly offset the cumulative losses to GSP, driven by public spending by both the Commonwealth and New South Wales state governments. The main contributor to the cumulative gain was National non-defence expenditure on COVID-19 vaccines and personal protective equipment (PPE), while state employee expenditure was the next largest contributor reflecting the increase in frontline services required to respond to the pandemic.

GSP Income

Compensation of Employees (COE)

COE growth in NSW has been subdued over the pandemic period as restrictions and lockdowns led to decreased demand, reduced hours worked and job losses. As reflected in the strength in government consumption, public COE was quite buoyant due to the demand for healthcare workers and other frontline services.

The recovery in COE in NSW has been below the strength observed nationally as a consequence of the lockdown the state experienced in late 2021. The cumulative loss over the pandemic period in NSW is estimated to be $26b.

Household income account

Gross disposable income remained on the pre-COVID trajectory through the pandemic. This was due to increases in social assistance benefits received and gross mixed income as well as falls in the interest payable on dwellings and consumer debt offsetting the subdued growth in COE. This resulted in the estimated cumulative loss based on the pre-COVID projection being minimal.

A fall in household consumption combined with on-trend growth in Gross Disposable Income resulted in NSW households accumulating $87b of savings[1] compared to the pre-COVID trajectory.

 

[1] Note: “savings” includes net savings plus the consumption of fixed capital

Victoria

Gross State Product

Victoria's GSP grew below pre-COVID projections, most notably during the 2019-20 and 2020-21 financial years. The impact of the nation-wide lockdown in March 2020 and the Victorian lockdowns that followed was a major detractor from GSP growth. The increase in GSP in 2021-22 shows that the economy has started to recover. The cumulative loss over the pandemic period in Victoria was estimated to be $69.5b.

GSP Expenditure

Household Consumption

Victoria suffered the largest estimated cumulative loss of household consumption expenditure of all the states and territories. This is reflective of the impact the numerous lockdowns had on household spending. Transport services, Hotels, cafes and restaurants and Other goods and services were the drivers of the loss compared to the pre-COVID projection.

Private Capital Formation

Private capital formation in Victoria also contributed to the loss in cumulative GSP. Total dwellings and non-dwelling construction were the major contributors to the fall reflecting the impact of lockdowns, capacity restrictions on building sites reducing construction activity and the inability to secure building materials due to supply-chain disruptions. Ownership transport costs increased above the pre-COVID trajectory as a result of the booming property market.

Government Consumption

Government consumption grew above the pre-COVID trajectory over the last three years, partly offsetting the overall cumulative fall in GSP. The cumulative gain in government consumption was driven by National non-defence expenditure, State and local employee expenses and State and local non-employee expenses. Expenditure on COVID-19 vaccines, personal protective equipment (PPE) as well as increased expenditure on frontline services to manage the pandemic response were all major contributors to the strength in GFCE.

GSP Income

Compensation of Employees (COE)

COE growth in Victoria has been subdued over the pandemic period as restrictions and lockdowns led to decreased demand, reduced hours worked and job losses. As reflected in the strength in government consumption, public compensation of employees partly offset this, due to the demand for healthcare workers and other frontline services.

The recovery in COE in Victoria has been below the strength observed nationally as a consequence of the extended lockdowns the state experienced through 2020 and 2021. The cumulative loss over the pandemic period in Victoria is estimated to be $12.0b.

Household income account

Gross disposable income grew faster than its pre-COVID trajectory in Victoria, especially in the first two years of the pandemic. This was due to increases in social assistance benefits received and gross mixed income, as well as falls in interest payable on dwellings and consumer debt offsetting the below trend growth in COE. Throughout the pandemic period, Victoria gross disposable income rose $18.8b compared to pre-COVID projections.

A fall in household consumption combined with above projection growth in Gross Disposable Income resulted in Victoria households accumulating $100.7b more of savings[1] compared to their pre-COVID projection.

 

[1] Note: “savings” includes net savings plus the consumption of fixed capital

Queensland

Gross State Product

Queensland's gross state product has grown below pre-COVID projections, driven by a significant fall during the 2019-20 financial year. The nation-wide lockdown in March 2020 and international border closures impacted the prevalent tourism industry in Queensland. Although Queensland GSP has returned to its pre-pandemic projection level in 2021-22, the cumulative loss over the pandemic period was estimated to be $19.1b.

GSP Expenditure

Household Consumption

Similarly to other states, Queensland household consumption retracted strongly at the beginning of the pandemic due to the first national lockdown. Since this time, it has responded strongly and now sits above the pre-pandemic trend level. Despite this strong recovery, household consumption still contributed to the cumulative fall in GSP with the major detractors being Transport services and Hotels, cafes and restaurants.

Government Consumption

Queensland government consumption partly offset the cumulative loss in GSP. The increase was due to National non-defence expenditure related to the provisioning of resources to manage the pandemic.

International Trade

International border closures had a significant impact on Queensland’s GSP. As a major exporter of international tourism services, the state receives a significant contribution to GSP from the tourism sector. The international tourism industry also drives demand for services from industries such as Accommodation and food services and Transport services. Over the years impacted by the pandemic, international exports of services contributed an estimated $24b to the cumulative fall in GSP compared to its pre-COVID trajectory.

GSP Income

Compensation of Employees (COE)

COE growth in Queensland increased above its pre-COVID trajectory, in part due to Queensland remaining relatively lockdown free through the pandemic. The Construction and Professional, scientific and technical industries drove this growth, responding to the high levels of public infrastructure investment in Queensland.

The cumulative growth in COE over the pandemic period in QLD is estimated to be $20b.

Household income account

Gross disposable income grew faster than its pre-COVID trend in Queensland over the pandemic. This was due to increases in social assistance benefits received, gross mixed income and compensation of employees, as well as falls in interest payable on dwellings and consumer debt. This resulted in an estimated cumulative growth of $49b in gross disposable income compared to the pre-COVID trajectory.

A fall in household consumption combined with above trend growth in Gross Disposable Income resulted in Queensland households accumulating an additional $48.3b of savings[1] compared to the pre-COVID trajectory.

 

[1] Note: “savings” includes net savings plus the consumption of fixed capital

South Australia

Gross State Product

South Australia’s GSP has grown above pre-COVID projections, with the fall in 2019-20 as a result of the nation-wide lockdown, being offset by rises in the next two years.  The cumulative gain over the pandemic period in South Australia GSP was estimated to be $3.9b.

GSP Expenditure

Household Consumption

South Australia’s household consumption experienced a fall compared to its pre-COVID trajectory, partly offsetting the cumulative gain in GSP. Other than the national lockdown experienced by all states, South Australia went into lockdown for several short periods across the pandemic. They were also subject to a number of restrictions around activities and capacity. These restrictions impacted Transport services, Hotels, cafes and restaurants and Health which were the main contributors to the cumulative fall.

Government Consumption

Government consumption grew above the pre-COVID trajectory in response to the pandemic. National non-defence and State and local non-employee expenses both rose above trend, with increased expenditure on vaccines, personal protective equipment (PPE) and provisioning additional health capacity all contributing to the cumulative increase.

GSP Income

Compensation of Employees (COE)

COE growth in South Australia was above its pre-COVID trajectory driven by the demand for healthcare workers and other professionals to respond to the pandemic. The cumulative gain over the pandemic period in South Australia’s COE compared to its pre-COVID trend is estimated to be $5.6b.

Household income account

Gross disposable income grew faster than its pre-COVID trajectory in South Australia over the pandemic. This was due to increases in social assistance benefits received, gross mixed income and compensation of employees, as well as falls in interest payable on dwellings and consumer debt. This resulted in a cumulative growth of $14.9b in gross disposable income compared to pre-COVID trajectory.

A fall in household consumption combined with above trend growth in Gross Disposable Income resulted in SA households accumulating an additional $20.1b of savings[1] compared to the pre-COVID trajectory.

 

[1] Note: “savings” includes net savings plus the consumption of fixed capital

Western Australia

Gross State Product

Western Australia’s GSP has grown stronger than its pre-COVID projection. Western Australia experienced low numbers of COVID-19 infections during 2020 and 2021, due to the COVID management protocols which included shutting their domestic border. As a result, their local economy continued operating relatively normally compared to other parts of the country. Strength in the mining sector due to high levels of international demand for iron ore was a key driver behind the strength in GSP. The cumulative gain over the pandemic period in Western Australia was estimated to be $22b compared to its pre-COVID trajectory.

GSP Expenditure

Household Consumption

Despite Household consumption levels exceeding the pre-COVID trend in 2021-22, HFCE still contributed an estimated cumulative loss to GSP. Transport services and Hotels, cafes and restaurants were the biggest detractors reflecting the impact of state and international border closures.

Government Consumption

Government consumption in Western Australia was stronger than its pre-COVID trajectory. Most components of government consumption exceeded the pre-COVID trend with the largest gains coming though State and local employee expenses, State and local social benefits to households and National non-defence expenditure. This was driven by; increased frontline services, provisions of rapid antigen tests (RATs) to households and the supply of COVID vaccines and personal protective equipment.

Public Capital Formation

Public Investment outpaced its pre-COVID trajectory over the last three years. This was driven by increased investment by the State and local sector with both general government and public non-financial corporations increasing investment in various assets including roads.

GSP Income

Compensation of Employees (COE)

COE growth in Western Australia has increased above the pre-COVID trajectory, the result of remaining relatively lockdown free through the pandemic. As reflected in the strength in government consumption, public COE was quite buoyant due to the demand for healthcare workers and other frontline services. Mining, Construction, and Professional, scientific and technical services all recorded strong growth as major mining projects through Western Australia increased construction and production activity over the pandemic period.

Gross operating surplus plus Gross mixed income (GOSMI)

GOSMI growth in Western Australia was very strong compared to the pre-COVID trajectory. This strength in GOSMI was driven by the Mining sector, with volumes remaining steady across the pandemic period while prices for commodities soared. Cumulatively, Western Australia’s GOSMI gained $159b compared to the pre-COVID trajectory.

Household income account

Over the pandemic, gross disposable income grew faster than the pre-COVID trajectory in Western Australia. This was due very strong growth in COE, the increase in social assistance benefits received and gross mixed income as well as falls in interest payable on dwellings and consumer debt. This resulted in a cumulative growth of $54b in gross disposable income compared to pre-COVID trajectory.

A fall in household consumption combined with strong growth in Gross Disposable Income resulted in Western Australian households accumulating an additional $20b of savings[1] compared to the pre-COVID trajectory.

 

[1] Note: “savings” includes net savings plus the consumption of fixed capital

Tasmania

Gross State Product

Tasmania's GSP has grown above pre-COVID projections, managing to offset a fall during the 2019-20 financial year with strength in the following two years of the pandemic period. The cumulative gain over the pandemic period in Tasmania was estimated to be $600m above pre-COVID projections.

GSP Expenditure

Household Consumption

Tasmania’s household consumption partly offset the cumulative gain in GSP. Other than the national lockdown in March 2020, Tasmania wasn’t significantly impacted by state lockdowns like other states but was subject to various restrictions at times. These restrictions impacted various consumption categories including; Transport services, Hotels, cafes and restaurants and Other goods and services, which were the major contributors to the cumulative fall.

Government Consumption

Government consumption grew above the pre-COVID trajectory in response to the pandemic. National non-defence and State and local non-employee expenses both rose above trend, with increased expenditure on vaccines, personal protective equipment (PPE) and provisioning additional health capacity all contributing to the increase.

Private Gross Fixed Capital Formation

Private capital formation in Tasmania experienced a cumulative fall compared to its pre-COVID trajectory. A weak result in 2019-20 was the major driver to the fall with Machinery and equipment and New engineering construction detracting from growth. However, Machinery and equipment and Dwelling investment displayed strong growth in 2020-21 due to a combination of government initiatives and the easing of COVID restrictions.

GSP Income

Compensation of Employees (COE)

COE growth in Tasmania increased above the pre-COVID trajectory Public COE grew as demand for healthcare and other frontline services was strong throughout the pandemic. The cumulative gain over the pandemic period in Tasmania’s COE is estimated to be $2.0b compared to the pre-COVID trajectory.

Household income account

Gross disposable income grew faster than the pre-COVID trajectory in Tasmania over the pandemic. This was due to strong COE growth, the increase in social assistance benefits received and gross mixed income as well as falls in interest payable on dwellings and consumer debt. This resulted in a cumulative growth of $6.8b in gross disposable income compared to the pre-COVID trajectory.

A fall in household consumption combined with significant growth in gross disposable income resulted in Tasmanian households accumulating an additional $8.2b of savings[1] compared to the pre-COVID trajectory.

 

[1] Note: “savings” includes net savings plus the consumption of fixed capital

Northern Territory

Gross State Product

Northern Territory's GSP has grown stronger than pre-covid projections, despite experiencing a fall in GSP during the 2020-21 financial year. The cumulative gain over the pandemic period in Northern Territory was estimated to be $3.2b above pre-COVID projections.

GSP Expenditure

Household Consumption

Despite Household consumption levels exceeding the pre-COVID trajectory level in 2021-22, cumulatively over the pandemic, the difference between household consumption and the pre-COVID trajectory was minimal. Transport services and Hotels, cafes and restaurants were the biggest detractors reflecting the impact of state and international border closures.

Government Consumption

Government consumption in the Northern Territory was stronger than its pre-COVID projections. Most components of government consumption exceeded the pre-COVID trend with National defence, National non-defence and State and Local employee expenses experiencing gains while sales of goods and services fell. The increases were driven by military training exercises, increased expenditure on pandemic related goods and equipment and an increase in healthcare personnel and frontline services.

GSP Income

Compensation of Employees (COE)

COE growth in the Northern Territory has fallen below the pre-COVID trajectory, driven by falls in the Construction and Professional, scientific and technical services industries, as demand for these services declined. Cumulative falls were also seen in the tourism and customer service facing industries as a result of border closures and other travel restrictions.

Household income account

Gross disposable income fell below the pre-COVID trajectory in the first year of the pandemic, reflecting the fall in COE in the same period, but recovered above pre-COVID projections in the 2021-22 financial year. This was due the increases in social assistance benefits received and gross mixed income as well as falls in interest payable on dwellings and consumer debt offsetting the subdued growth in COE. This resulted in a cumulative fall of $380m in gross disposable income compared to pre-COVID trajectory in Northern Territory.

The weakness in Gross Disposable Income and the sustained Household consumption resulted in Northern Territory households losing $0.7b of cumulative savings[1] compared to the pre-COVID trajectory.

[1] Note: “savings” includes net savings plus the consumption of fixed capital

Australian Capital Territory

Gross State Product

Australian Capital Territory's GSP grew at the pre-COVID trajectory for the first two years of the pandemic as high levels of government expenditure on pandemic management offset the falls in Household consumption. In early 2021-22, the Australian Capital Territory went into lockdown in response to the Delta outbreak, resulting in growth that was below the pre-pandemic trend. The overall cumulative loss in GSP compared to the pre-COVID trajectory was estimated to be $1.0b.

GSP Expenditure

Household Consumption

The Australian Capital Territory’s household consumption contributed to the cumulative fall in GSP. The Australian Capital Territory experienced the national lockdown in 2019-20 and the Delta lockdown in 2021-22. Both these lockdowns impacted household consumption with Transport services, Hotels, cafes and restaurants and Other goods and services being the major contributors to the cumulative fall compared to the pre-COVID trajectory.

Government Consumption

Government consumption partly offset the cumulative losses to GSP, driven by public spending by the Commonwealth and Territory governments in response to the COVID-19 pandemic. The main contributor to the cumulative gain was National non-defence expenditure due to the high level of expenditure on personnel to manage the Commonwealth governments response to the pandemic as well as COVID-19 vaccines and personal protective equipment (PPE). State employee expenditure was the next largest contributor reflecting the increase in frontline services required to respond to the pandemic.

GSP Income

Compensation of Employees (COE)

COE growth in the Australian Capital Territory has been rising on par with the pre-COVID trajectory over the pandemic period, as the ACT managed to avoid major lockdowns until late 2021. As reflected in the strength in government consumption, public COE was quite buoyant due to the demand for healthcare workers, pandemic management and other frontline services.

Household income account

Gross disposable income in Australian Capital Territory rose mostly in line with the pre-COVID trajectory throughout the pandemic, reflecting the similar steady increase in COE.

While the Australian Capital Territory saw very consistent growth in gross disposable income across the pandemic period, this was partly offset by the impact of both major lockdowns on household consumption. This resulted in ACT households gaining an additional $1.7b of savings[1] compared to the pre-COVID trajectory.

[1] Note: “savings” includes net savings plus the consumption of fixed capital

Post release changes

07/02/2023 - Update to Figure 30. Western Australia Net savings, actual and pre-COVID-19 trajectory, current price values due to an error.