Second lockdown will be 'catastrophic' for hospitality sector

MELBOURNE • Hotel Esplanade was just emerging from a two-month lockdown when it learnt that a second wave of coronavirus infections would force it to shut again. Like hundreds of businesses in Melbourne, Australia's second-largest city, it fears the impact this time will be worse.

"The first lockdown for hospitality was devastating," said Mr 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 took effect at midnight on Wednesday in Victoria's capital is set to devastate its restaurants, cafes, spas and small retailers, which were taking their first tentative steps back to business as usual.

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

Melbourne's 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 cases by shutting its international border as well as implementing 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 travellers returning from overseas, has led to a fresh outbreak in Victoria.

The state has now seen more than two weeks of double-digit daily increases, and reported 165 new cases yesterday.

The city of five 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, that has all gone dark again.

"I am incredibly concerned for our small businesses in the restaurant, bar, club and hotel sector," said Ms Ana Marinkovic, head of small-business lending at the Melbourne-based National Australia Bank, which has temporarily closed two office towers 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."

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

Within hours of the announcement, acclaimed eatery Brae, which is nestled in the rolling Otway hills some 140km south-west of central Melbourne, 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 Ms Julianne Bagnato, operations manager at Brae, which peaked at 44 in the World's 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 (S$291) set menu, it will probably be left operating at about 50 per cent of its already-reduced capacity, Ms 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 Dr John Vaz, a senior lecturer at Melbourne's Monash Business School, referring to small and medium-sized enterprises. "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.

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

And S&P Global Ratings, which lowered the outlook on Victoria's AAA rating to negative in April, said on Wednesday: "The new restrictions, along with border closures with other states, will hurt economic activity and delay the state's recovery."

BLOOMBERG