CBA (ASX:CBA) share price closes lower as bank warns of shrinking GDP

Australia's rolling lockdowns are keeping the virus largely at bay, but the economic costs are mounting.

Bernd Struben

Author bio Bernd Struben earned his BA in economics from the University of Michigan in 1991, with post-graduate studies in environmental economics at the University of Connecticut. Over the years he’s written about and analysed the tourism industry in the Caribbean; Europe’s commercial real estate markets; and, since moving to Australia in 2010, global and Aussie share markets. Bernd studies geopolitical and macroeconomic trends, alongside sector and company specific data, to gauge what he believes could be tomorrow's best investments. In his free time, you might find Bernd at the beach with his family or working on his next science fiction novel. Areas of expertise Australian and global share markets Macroeconomic and geopolitical trends Real estate Education Economics, University of Michigan Favorite investment quote "The four most dangerous words in investing are: 'This time it's different." — Sir John Templeton

Published July 28, 2021 5:00 pm AEST

The Commonwealth Bank of Australia (ASX: CBA) share price closed the day down 1.4%, to $99.30 per share.

Today's loss sent CBA shares back below the psychological $100 mark, which they'd once again breached just yesterday.

CBA made headline news today after it announced major changes to its regional branch operations.

CommBank also sounded the alarm in a note released this morning, warning of the hit Australia's economy is likely to get from the extended COVID-19 lockdown measures in the Greater Sydney area.

A baby lying on a pile of one hundred dollar notes — Image source: Getty Images

CBA sounds alarm on economic slowdown

According to CBA researchers, New South Wales extended lockdowns will result in some 300,000 job losses in the coming months.

"A deep contraction in GDP over third quarter of 2021 is now a fait accompli. It is the inevitable consequence of shutting down large parts of the economy," CBA's head of economics Gareth Aird said (quoted by the Sydney Morning Herald).

CommBank now expects the unemployment rate will top out at 5.6% in October.

Aird also expects the federal government will be rebooting its stimulus efforts:

Substantial policy support will once again be needed to ensure that the economic rebound is swift when restrictions are eased… The recently announced fiscal support is significant, but we suspect that policymakers will once again err on the side of doing too much rather than not enough and further stimulus is likely.

New South Wales remains at the epicentre of Australia's new COVID wave. While South Australia and Victoria have tentatively eased their respective lockdowns, NSW reported 177 new cases over a 24-hour period.

With lockdowns in the state now extended for at least 4 weeks, Aird forecasts economic demand in NSW will shrink by 9% in Q3 while GDP will fall by 2.7%. He expects the rest of Australia will grow modestly during the quarter, while NSW, the most populous state, contracts.

CommBank share price snapshot

Despite today's move lower, the CBA share price remains up by around 38% over the past 12 months, compared to a 23% gain posted by the S&P/ASX 200 Index (ASX: XJO).

CBA shares hit all-time highs on 17 June, closing at $105.91 per share. Since the record high, shares are down 6.2%.

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