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Chief economist update: Flattening the rebound

The earlier than expected easing of restrictions in Australia that defrosted social and commercial activity has had their desired effect - rebounding business conditions and confidence - and the feared one -- a second wave.

The NAB monthly business survey showed that business conditions surged by 17 points in June to -7 index points - the second month straight month of increase - due to broad-based improvement across industries and sharp rebounds in its components: trading (-7 in June from -19 in May); profitability (-8 from -19); employment (-11 from -31).

Australian business confidence brighten much brighter, rising by 21 points to +1 index points - the third consecutive month of improvement after dropping to a record low reading of -66 points in March.

Then again, as Alan Oster, NAB Group chief economist, declared: "The survey was conducted just prior to the reintroduction of lockdowns in Victoria..."

Cast your minds back a few weeks back. The state of Victoria was primed and pumped for the second stage of looser coronavirus restrictions after the clock strikes 12 on the midnight of June 22. Instead, state premier Dan Andrews suspended the planned easing of restrictions for restaurants and pubs, and limits on household and public gathering were suspended (some even tightened) until midnight of the 12th of July as cases of infections grew.

Stage 3 restrictions were then reimposed in Metropolitan Melbourne as infections continued to multiply, prompting all of Australia's other states and territories to close their borders with Victoria. Australia's second biggest state is reportedly planning to impose tighter Stage 4 restrictions.

But that didn't stop the coronavirus from migrating to New South Wales - the country's biggest state. The resurgence of infections there has forced the state government to announce new restrictions on pubs and clubs. It has also prompted Queensland to shut its borders to 77 Sydney suburbs and South Australia to defer its 20 July planned border opening with NSW and the ACT.

While NSW premier Gladys Berejiklian has ruled out following Victoria's lead and send Sydney back into lockdown, she'll be left with no other option if infections get out of control like in Melbourne.

The forward view in these all is reflected in the re-sinking of consumer confidence.

The Westpac-Melbourne Institute index of consumer sentiment fell by 6.1% to a reading of 87.9 in July, nearly reversing all of the previous month's 6.3% increase.

As Westpac put it: "The timing of the survey is relevant. It covered the week in which the lock down was announced for Melbourne but the survey closed before the news of a significant cluster was reported for Sydney."

Apart from the reimposition of lockdown restrictions in Victoria, restrictions on pubs and clubs and NSW and closed interstate border policies, Westpac points out that, "the renewed outbreak points to a slower and more difficult path ahead for the foreign education, hospitality and tourism sectors all of which may see longer lasting restrictions even if the latest outbreak is successfully contained."

Read our full COVID-19 news coverage and analysis here.

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