Effects of COVID-19 strains on the Australian economy

COVID-19 has had a profound impact on the Australian economy since arriving in Australia in January 2020. Measures to reduce the spread (e.g. social distancing, commercial trading restrictions, and stay-at-home orders) have had varying impacts on economic activity.

The most noticeable impacts were driven by two COVID-19 variants: the L-strain of the virus which arrived in Australia in January 2020, and the Delta strain which was first detected in June 2021. The impact of these variants on macroeconomic aggregates are explored below and compared to the Omicron variant outbreak of COVID-19 in the March quarter 2022.

Note: the lockdowns shown in the above timeline are for metropolitan areas only.

The arrival of the L-strain of COVID-19 triggered an Australia wide lockdown on 23 March 2020. The first major round of restrictions included temporary closures of pubs, clubs, cafes and restaurants, with various other service providers following shortly after. Many workplaces advised their employees to work from home where possible. Household social distancing measures were put in place, with the most severe restrictions being that gatherings were restricted to two people. Restrictions began to ease across the country between late April and early May of 2020.

A surge in COVID-19 cases in Victoria triggered the state to go into a second lockdown on 8 July 2020, with stage 4 stay-at-home restrictions introduced in August. There were shorter lockdowns enforced in Queensland, Western Australia and South Australia.

The emergence and subsequent rapid spread of the Delta strain in June 2021 triggered various lockdowns across all states and territories, with Victoria, the ACT and NSW enduring the longest, strictest restrictions. Leaving home was only permitted for essential reasons and mandatory mask wearing was enforced. Polymerase chain reaction (PCR) testing ramped up, and national and state governments strongly encouraged Australians to get vaccinated. Targets for vaccination rates were set across states and territories with the incentive of easing restrictions and ending lockdowns when these targets were met.

The Omicron variant was first confirmed in Australia on 27 November 2021 when the nation had high vaccination rates. Despite the increasing rate of infection, federal and state governments did not introduce new lockdown restrictions and travel and trading restrictions were gradually eased.

To support household and businesses, Governments provided subsidies and other payments over the course of the pandemic.

The lockdowns and trading restrictions following the L-strain outbreak led to record falls in hours worked and private compensation of employees. Workers were laid off or put onto reduced hours as businesses closed or reduced operations in compliance with health mandates.

The Commonwealth Government subsequently introduced the JobKeeper and Boosting Cash Flow for Employers programs to support businesses and employees in their employment. Subsidy payments contributed to the 12.1% increase in operating surplus in June quarter 2020. Household gross income was further supported by social assistance benefits in cash, such as the Economic Support Payment and Coronavirus Supplement.

The JobKeeper and Boosting Cash Flow for Employers programs ended prior to the emergence of the Delta strain. Support through the Delta variant was provided for locked down states through Commonwealth and State government co-funded business support programs. Direct wage support was reduced in the absence of JobKeeper. The COVID-19 Disaster Payment was the main support payment for households, assisting those unable to earn an income as a result of local public health orders.

The level of subsidies provided through the Omicron outbreak was lower. Governments focused on removing or lessening trading restrictions, whilst underlying demand improved. The Pandemic Leave Disaster Payment was introduced to support workers who lost hours due to being forced to isolate in compliance with health regulations. These payments were less material than COVID-19 Disaster Payments during the Delta strain due to the lack of lockdowns.

Household spending patterns changed significantly over the pandemic and across the different COVID-19 strains.

Discretionary spending was more impacted by COVID-19 containment measures than expenditure on essential goods and services. Spending on discretionary services declined significantly during the L-strain and Delta outbreaks of COVID-19, as movement and trading restrictions restricted access to dining out, recreational and personal services.

By contrast, discretionary spending on goods increased as consumers spent more time at home and could not travel. Many retailers of household and recreational goods mitigated the impact of mobility restrictions through the use of online platforms to reach housebound customers.

As the pandemic progressed, spending on essential goods and services returned to more pre-COVID levels. The emergence of the L-variant saw panic buying of food. Spending on food remained elevated through the Delta strain, as access to hospitality businesses remained restricted. 

The outbreak of the Omicron strain of COVID-19 did not affect household spending to the same extent as the L or Delta strains. Unlike the previous strains, the Omicron variant did not result in lockdown actions and there were high vaccination rates across much of the country. The removal of mobility and trading restrictions enabled shopfronts to operate regular trading patterns, and consumer demand remained strong.

The L and Delta strains saw large changes in government spending and social benefits in kind to households.

With the arrival of the L-strain, government spending ramped up in early 2020. Increased spending was seen for pop-up health clinics, infection containment training, personal protective equipment (PPE), and additional frontline staff for government services.

Lockdowns and uncertainty about the extent of L-strain transmission in the community initially led to a decline in social benefits in kind as households avoided non-COVID medical attendances, however this rebounded sharply as restrictions began to ease.

Outbreaks of the Delta variant in NSW, Victoria, and the ACT coincided with the rollout of PCR testing facilities and COVID-19 vaccination drives across Australia. This increased government spending throughout the middle of 2021 and slowed in the December quarter 2021 as vaccination targets were reached.

The arrival of Omicron increased government spending on COVID-19 with rapid antigen testing (RAT) accepted in addition to PCR tests to help detect the spread of Omicron. Governments introduced programs providing free RAT tests to concession card holders and in some jurisdictions, school-aged children. This is reflected in social assistance benefits in kind. As case numbers peaked, spending on equipment and staffing in state hospitals also increased.

The response to the L-strain outbreak of COVID-19 led to a large fall in gross value added (GVA) in the June quarter 2020, driven by a record decrease in market sector GVA. Impacts were widespread throughout market industries, with only Mining and Financial and Insurance Services recording growth. The largest falls were seen in tourism and hospitality-related industries, reflecting the restrictions imposed on movement.

Non-market GVA declined driven by Health Care and Social Assistance. Elective surgeries were cancelled and visits to health care professionals declined as households sought to limit the spread of the virus. Both market and non-market GVA partially recovered in the September quarter 2020 as restrictions were lifted.

The Delta strain of COVID-19 had similar effects on market and non-market GVA, with trading and mobility restrictions reducing demand for many goods and services. The falls were not as pronounced as those that occurred during the L-strain, as fewer states experienced outbreaks. Additionally, trading frameworks such as COVID-19 safety plans were developed to allow some businesses in affected states to keep operating under restrictions such as mandatory QR check-ins for patrons and venue capacity limits.

The absence of lockdowns under the Omicron variant resulted in a lower impact on demand. While restrictions were less stringent, hours worked fell due to high COVID-19 infection rates and subsequent isolation requirements. Market sector GVA rose in the March quarter 2022, with the reopening of domestic and international borders. Growth was recorded in travel-related industries such as Transport, Postal and Warehousing and Accommodation and Food Services. Non-market GVA fell due to a contraction in Health Care and Social Assistance, however the fall was less severe than for the prior strains.