The imposition of Stage 4 restrictions in Melbourne may shrink real GDP by $7 to $9 billion and push effective unemployment up to 13 per cent, according to Prime Minister Scott Morrison.
Combined with the impact of earlier Stage 3 restrictions in Melbourne, Morrison says the total hit to GDP will be in the range of $10 to $12 billion.
Fronting the press this morning, Morrison says these estimates are a "heavy blow" for Australia.
"That is very concerning, that is very troubling, but it is not unexpected," Morrison said.
"In the circumstances these measures will have a very significant cost, and it will impact the recovery path, but the task doesn't change. We get on top of this issue in Victoria and we band together and we make this work."
Approximately 80 per cent of the economic cost is expected to be in the affected areas of Victoria, representing an approximately $6 to $7 billion hit.
The remainder represents a preliminary estimate of the broader impact of confidence in other states and supply chain impacts from the shutdown of industries in Victoria.
The national unemployment rate is now expected to peak at 10 per cent, up from a previously forecast high of 9.25 per cent.
However, when looking at the effective unemployment rate, which includes those who are employed but not working any hours, Morrison says that could now reach 13 per cent.
The news comes as many businesses in Melbourne have been forced to close overnight in line with Stage 4 restrictions.
Only a small handful of 'essential services' are still operating, including grocery stores, pharmacies, and petrol stations.
Manufacturing, food processing, and supply chain facilities have also been slowed down, and the construction industry must work with skeleton crews to keep the flame of a pilot light glowing until restrictions can be eased.
Morrison said we needed to "work together across the country, to do the things we need to do, to boost that demand, to encourage that investment, and to rebuild our economy and to go forward."
"I know this news is upsetting and disappointing, but as Australians we have to keep our heads up. Let's keep our heads up together, let's look out for each other, and let's get through this."
471 new COVID-19 cases in Victoria as Stage 4 causes headaches for Premier
Businesses in Melbourne have woken up to a new six-week reality with most retailers closed and only essential services able to continue operating, as the state records 471 new COVID-19 cases and eight new deaths.
This new level of restriction has resulted in businesses like meatworks and other food processors struggling to figure out how to operate under the new rules, but Premier Daniel Andrews says imposing the rules was "always an imperfect process".
As such, the Premier has announced some specific rules for certain industries today to enable them to continue to operate under Stage 4 in a COVID safe manner.
Beacuse it is a high risk sector, abbatoirs and meat processors will go down to 66 per cent of operations. Any abbatoir with less than 25 staff will not need to make any reductions at all to the workforce.
For poultry facilities, production will need to be reduced by 20 per cent. Andrews says this is because if they are forced to go down to 66 per cent there will be many hundreds of thousands of animals that would be destroyed but not processed.
Finally, for seafood producers with less than 40 staff, no reductions will need to take place.
"All of these measures are about driving down the number of workers to the lowest number we can practically get to, whilst at the same time not delivering critical shortages of products," says Andrews.
"Therefore there are balanced points to be found and we're confident that we have been able to do that."
Updated at 12:11pm AEST on 6 August 2020.