How will Ending Lockdowns Impact the Economy and Interest Rates?

The roadmap out of lockdowns announced by the NSW Government in September will almost certainly help revive that state’s economy.  While probably a few weeks behind, the ACT and Victoria will also follow the lead of NSW by easing restrictions further in October or November.  However, it will be a gradual process by all states and territories to ease restrictions (and possibly only for the fully vaccinated), ensuring case numbers do not explode and the hospital systems become overwhelmed. 

A key graph that neatly explains the issues is copied from the Doherty Report below.  Based on the modelling, to reduce the Transmission Potential (TP) of the Delta variant from 8.0 (where there are no measures to reduce transmission so one person infects another eight people) to 1.0 (where case numbers are stable with one person infection only one other person) requires a range of other control measures even at 80% vaccination.

Vaccination coverage of 80% accounts for only around “2.5 units” of TP reduction (from 3.8 to 1.3 on the scale which is logarithmic) meaning that without any other measures one person would infect a further 5.5 people and cases would explode. The other “4.5 units” of reduction necessary come from Baseline Public Health and Social Measures (PHSM) and partial TTIQ (“4.2 units”) plus additional “Low” PHSM Measures (“0.3 to 0.4 units”).  This means infected persons and their close contacts will need to isolate, areas of transmission will still need to be deep-cleaned, the 2 sqm rule and venue capacity restrictions will apply, COVID safe plans for all business will still be in place, there will likely be mask wearing and QR code check-ins, but schools and offices will be open subject to decreased social interaction.

Given that Low PHSM measures will be required in addition to the Baseline ones that COVID free states are currently operating under, there will be little incentive for these COVID free states and territories to open borders immediately to other areas where COVID is circulating freely. To do so will provide poorer social and economic outcomes to their citizens via the introduction of greater restrictions, the activation of their TTIQ systems and increased loads on their hospital systems. It is unclear as to when these COVID free states should open up, but most likely at as high a rate of vaccinations as possible, although events may overtake them if they suffer an outbreak they cannot control as was the case for Victoria and ACT that could not contain the cases entering them from NSW.

Comparisons of what can happen if too many restrictions are lifted too early overwhelming TTIQ measures are the situations in the USA with 3,162 cases and 26 deaths per 1 million of population in the last seven days, the UK with comparable figures of (3,947, 14) and Israel (5,756, 19).  In contrast, Australia currently has 434 cases and 2 deaths per 1 million of population.  It is unlikely given current rhetoric that there is political appetite to see these figures increase by a factor of 10 in line with these comparable countries that all have much higher vaccination rates as per the chart below. The rates are measured as a percentage of the total population and excluding those previously infected with COVID that will mean effective vaccination rates are higher in the UK, Israel and the USA.  The UK and Israel are both close to or above 80% double dosed based on Australia’s preferred measure of the adult population base of 16 and above.

This experience clearly shows without sufficient TTIQ and PHSM restrictions, herd immunity cannot be achieved so whatever the percentage of the population that is unvaccinated will be exposed to COVID. If this is hundreds of thousands of people per month, the hospital system is overloaded as is occuring in some states of the US that are experiencing a “pandemic of the unvaccinated”. This is not an outcome that will be socially acceptable in Australia especially in an election year for the Federal government.

The bottom line is the current projected end to lockdowns will provide a large boost to the economies of those areas exiting lockdowns, but because of ongoing restrictions the economic recovery nationally is unlikely to be as swift as it was from the prior lockdown which returned Australia to a COVID free state able to operate with lesser restrictions than the ones almost certainly will be necessary to control the spread of the virus at least in the short-term.

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