Australia's unravelling "zero Covid" strategy will cost its economy more than £500m (NZ$992 million) every week of lockdown as analysts warn restrictions in some of its most populous states could last until October.
Forecasters warned that renewed lockdowns and the glacial pace of its vaccination programme will trigger a sharp drop in GDP in the third quarter as Delta cases threaten to explode.
Economists at UBS said the current lockdown in New South Wales and its capital, Sydney, will cause a A$1b (NZ$1.05b) hit a week and cost the Australian economy a cumulative A$25b, or £13b.
If the most populous state is in lockdown for all of the third quarter and restrictions are imposed elsewhere, national GDP would fall by 2.5pc compared with the previous three months, the bank warned. Such a decline would not be as damaging as the record 7pc slump suffered in the second quarter of 2020 but would still be far larger than pre-Covid contractions.
Australia has been held up as a success story during the pandemic, but countries that pursued a "zero Covid" approach are now struggling to contain the fast-spreading Delta variant. An outbreak in China is also threatening its zero tolerance stance as the UK, US and Europe are forced to learn to "live with Covid".
George Tharenou, a UBS economist, warned the "looming very large economic cost of the lockdown is already evident" in recent retail sales and payrolls data. He estimated that up to A$1.5bn of government support every week will be needed to prop up the economy.
Mr Tharenou added: "A third Covid-19 wave in Australia, especially in New South Wales, materially increases uncertainty of the economic outlook, with hard lockdowns by state governments each time cases appear."
Scott Morrison's government has been lambasted for a botched vaccine campaign that has left Australia's jab rate lagging well behind other advanced economies.
He acknowledged on Monday that voters were "angry" as his approval rating dives, but warned there "can be no shortcuts".
The prime minister has suggested that 70pc of adults will need to be fully vaccinated to move to "phase B" where Covid restrictions are eased. Only 18pc, or 4.6m people, have had both jabs.
Despite a recent pick-up in jab numbers, Mr Tharenou cautioned that "the 'magic number' for re-opening still can't be reached before October".
"We also expect a longer tail of restrictions compared with after previous lockdowns, and subsequently a slower rebound in mobility and economic activity," he added.
- Telegraph Media Group