Melbourne‘s Second Lockdown Will Exact a ’Catastrophic Cost

Melbourne‘s Hotel Esplanade was just emerging from a two-month lockdown when it learned a second wave of virus infections would force it to shut again. Like hundreds of businesses across Australia’s second-largest city, it fears the impact this time will be worse.

“The first lockdown for hospitality was devastating,” said Andy Mullins, one of the co-owners of the beachside suburb pub affectionately known as The Espy. “I fear the second will be catastrophic.”

The six-week stay-at-home order that came into force at midnight across the Victoria state capital is set to devastate the citys restaurants, cafes, beauty spas and small retailers, which were just taking their first tentative steps back to business-as-usual.

The Esplanade Hotel in St Kilda, Melbourne, on Jul 9.

Photographer: Carla Gottgens/Bloomberg

The sweeping restrictions threaten to deepen and prolong Australias first recession in almost 30 years. Victoria contributes about one-quarter of gross domestic product, but is now isolated from the rest of the country as other states shutter their borders against a worrying spike in community transmission.

Read More: The Mistakes That Pushed an Australian City Back Into Lockdown

Melbournes travails also provide a cautionary tale for other big, service economy-driven cities such as London, that are reopening pubs and restaurants in a bid to jump-start their crippled economies.

Australia had enjoyed early success in crushing the curve of virus infections by shutting its international border, social distancing measures and a widespread testing and tracing regime.

But a mixture of complacency as restrictions were eased, and missteps in the quarantining of travelers returning from overseas, has seen a fresh outbreak in Victoria. The state has now seen more than two weeks of double-digit daily increases and reported 165 new cases on Thursday.

Customers have manicures on the night before a city lock down in Melbourne, on July 8.

Photographer: Carla Gottgens/Bloomberg

The city of 5 million people prides itself on its world-class restaurants, vibrant cafe scene, and passionate sports fans, who flock to the 100,000-seat Melbourne Cricket Ground to watch Australian Football League matches.

Now, thats all gone dark again.

“I am incredibly concerned for our small businesses in the restaurant, bar, club and hotel sector,” said Ana Marinkovic, head of small-business lending at Melbourne-based National Australia Bank Ltd., which has temporarily closed two office towers in the city while most staff work from home.

“They have just started to pick up and we have even had a small proportion of customers resume their payments,” she said. “Obviously all of that is going to get set back significantly.”

Read more: Australia Banks Extend Loan Holiday as 800,000 Defer Payment

While the stay-at-home order only applies to metropolitan Melbourne -- ranked as the worlds second-most liveable city last year -- its effects will be felt across the state.

A patron sits alone outside a pub in Melbourne, on July 8.

Photographer: Carla Gottgens/Bloomberg

Within hours of the announcement, acclaimed eatery Brae, which is nestled in the rolling Otway hills some 140 kilometers (87 miles) from Melbournes CBD, was hit by about 200 cancellations from would-be diners now unable to travel.

“Taking away the metro market for us is nothing short of crippling,” said Julianne Bagnato, operations manager at Brae, which peaked at 44 in the Worlds 50 Best Restaurants list in 2017.

While it will remain open for people who can still travel from regional areas to sample its A$300 ($208) set menu, it will probably be left operating at about 50% of its already-reduced capacity, Bagnato said.

The return to lockdown “will kill many SMEs as they will not be able to survive a long-term path to a normal economy,” said John Vaz, a senior lecturer at Melbournes Monash Business School. “It will take around three-to-five years to return to pre-Covid levels based on experience with previous recessions where high unemployment has prevailed.”

With Victoria the nation‘s biggest economy after New South Wales, the lockdown has also dimmed Australia’s economic prospects.

What Bloombergs Economists say:

“This will significantly dampen the Australian economys recovery in Q3, and could potentially result in a contraction. Even without broader transmission of the virus, the chilling effect of heightened uncertainty on consumer and business confidence can still dampen activity across non-affected regions.”

James McIntyre, economist

Westpac Banking Corp. chief economist Bill Evans now expects GDP to shrink 4.2% this year, compared to a previous forecast of a 4% contraction, because of the Melbourne shutdown.

Key Driver

Victoria accounts for around one-quarter of Australia's economic output

Australian Bureau of Statistics

Gross state product, share of Australian total, 2018-19

“The new restrictions, along with border closures with other states, will hurt economic activity and delay the state‘s recovery,” S&P Global Ratings, which lowered the outlook on Victoria’s AAA rating to negative in April, said in a statement Wednesday.

The lockdown has also put an end to sports fans‘ hopes of watching their teams in action anytime soon. While the AFL season had initially resumed behind closed doors, Victoria’s 10 clubs have decamped to hubs in New South Wales, Queensland and Western Australia for the foreseeable future.

A chalk board stands outside a take away alcohol store in Melbourne, on July 8.

Photographer: Carla Gottgens/Bloomberg

And it‘s just not the fans suffering. There’s the flow-on effect to pubs where they would usually congregate before and after games, along with security firms, caterers and stadium staff who are no longer needed.

For The Espy‘s Mullins, the city’s social fabric and its allure to residents and tourists over the longer term is under threat if businesses dont survive the lockdown.

“You come to Melbourne for the laneways, the food, the wine, the live music, the theater,” he said. “It‘s going to be devastating for the city when we’re all told to turn the lights back on and we realize the light switches were gone many, many months ago.”

— With assistance by Alexandra Veroude

(Adds latest number of cases in seventh paragraph, economist comment.)