Victoria restrictions didn’t hit as hard as initially feared

The surge in case numbers due to the second wave in Melbourne has been brought under control with new daily cases falling back towards zero. Heavy restrictions on activity still remain in place in Melbourne, although they have been eased for rural Victoria. But the restrictions haven’t had as large an impact on activity as we had anticipated. To be sure, retail sales fell 12.6% in Victoria in August. But that still left them 4.4% than in April when milder stay-at-home orders were in place. And the fall in hours worked was also smaller than the fall across April and May. We had already expected GDP to pick up in Q3 so the resilience of activity in Victoria only bolsters that forecast. We now expect GDP growth of 1.5% q/q in Q3, up from our previous forecast of a 0.5% q/q rise.