CANBERRA, AAP – Treasurer Josh Frydenberg says whether the Australian economy can avoid a second recession in as many years will depend on the success of the lengthy NSW lockdown.

Economists have further downgraded their forecasts for the national economy in the September quarter, with the country’s most populous state now facing stiff restrictions until the end of August.

“My expectation is that the September quarter will be negative,” Mr Frydenberg told ABC television on Thursday.

“But with respect to the December quarter, that does depend to a large extent how successful New South Wales, our largest state economy, is in getting on top of this virus.”

Two consecutive quarters of economic contraction constitutes a technical recession.

Sydney is the country’s biggest city and represents about a quarter of national output.

RBC Capital Markets chief economist Su-Ling Ong now expects a negative result of 1.2 per cent for the September quarter, double her initial estimate made during early NSW restrictions, and snap lockdowns in Victoria and Adelaide.

ANZ economists Felicity Emmett and Catherine Birch believe the NSW government will be forced to extend restrictions until at least the end of September.

As such, they expect the economy will contract by 1.3 per cent.

“The risks to the outlook are tilted to the downside,” they said in a note to clients.

“Given the much greater transmissibility of the Delta variant, the possibility of a longer lockdown in Sydney or further contagion into other states is significant.”

Commonwealth Bank head of Australian economics Garth Aird anticipates an even bigger negative of 2.7 per cent for the September quarter, and only a partial 1.9 per cent recovery in the December quarter.

But it is not all doom and gloom.

“It is our expectation that 2022 will be an incredibly good year for the Australian economy, provided the successful rollout of the vaccine means that COVID-19 restrictions are no longer imposed on the domestic economy,” Mr Aird said.

Prime Minister Scott Morrison agrees.

“It will take a short-term hit, there’s no doubt about that, but our experience is the economy comes back strongly if you keep it as whole as possible, which is what we have done,” he told Melbourne 3AW radio.