Pandemic hits big cities hardest

The coronavirus pandemic recession is disproportionately hurting the nation’s economic powerhouses, Melbourne and Sydney, in a way that could leave a lasting impact on the country for years and force the cities to reinvent themselves.

Large numbers of COVID-19 cases, a collapse in international tourists, the effective end to migration plus ongoing high unemployment are hitting the two capitals to such an extent that national economic growth will be affected, possibly for years.

Official data from the Australian Bureau of Statistics to be released on Wednesday will confirm the nation’s first recession since 1990-91, with Victoria and NSW expected to show the biggest downturns.

About 40 per cent of Australians live in the two capitals, and Melbourne and Sydney account for more than 45 per cent of national GDP. Between 2008-09 and 2018-19, Melbourne’s economy grew by 3 per cent per annum while Sydney’s grew by 2.7 per cent. The national growth rate was 2.5 per cent.

The growth was driven in part by high population growth. Between 2014 and 2019, Australia’s population swelled by 1.9 million to 25.4 million. More than 1.1 million of those extra Australians were living in Sydney and Melbourne.

But Australia’s migrant intake is expected to collapse by 85 per cent this year.

Research from Oxford Economics suggests the world’s major cities had been particularly affected by the coronavirus outbreak, with high death levels and large-scale infection rates.

The head of global cities research for Oxford Economics, Richard Holt, said cities had benefited from being attractive locations for highly productive people and businesses who have lifted the economic potential and growth rates of those cities.

‘‘This virtuous circle is why cities are often said to be the engines of national economies and why, around much of the world, cities have been accounting for a growing share of global economic output,’’ he said.

But that virtuous circle is expected to be affected by the fallout from the coronavirus recession.

SGS Economics and Planning partner Terry Rawnsley said the traditional drivers of growth in Melbourne and Sydney would be severely challenged by the coronavirus outbreak.

He said after the 1990-91 recession, Melbourne had re-imagined itself with a heavy focus on higher education, international tourism, major events and construction. They were also important ingredients to Sydney’s economic success.

‘‘All of these areas have taken a real hit and been exposed by the coronavirus outbreak,’’ he said.

‘‘Both Melbourne and Sydney have to look at themselves and see what transition they might have to make, to find new ways to grow, given what’s happened.’’ Payroll data from the Australian Bureau of Statistics shows the impact on the cities’ job markets.

In Victoria, 7.8 per cent of payroll jobs have gone since mid-March but in central Melbourne the rate is at a national high of 10.3 per cent.

In NSW since mid-March 4.4 per cent of all payroll jobs have disappeared. But in central Sydney about 8.5 per cent have gone.

Yesterday, Treasurer Josh Frydenberg released new Treasury analysis of Commonwealth Bank spending figures and unemployment benefits data showing Melbourne’s stage four lockdown was having a major impact on Victoria’s economy. More than 400,000 Victorians had received JobSeeker, 600,000 had received the coronavirus supplement, while Treasury believes in the December and March quarters there will be more people on JobKeeper in Victoria than every other state combined.

The Grattan Institute’s transport and cities program director, Marion Terrill, said the sharp reduction in population growth would have a flow-on effect, including to major construction projects in both cities.

‘‘We’ve got a large number of major projects approved on the expectation of a lot of people, who are simply not going to be there,’’ she said.