(Bloomberg) -- Australia’s most populous state could be playing “Russian Roulette” with its economic recovery by pressing ahead with a roll back of virus restrictions in the face of surging infections, according to AMP Capital Investors Ltd.’s Shane Oliver.

New South Wales’ decision to relax mask and vaccine mandates, check-in requirements and density limits at a time “when other countries are going in the opposite direction has added to the coronavirus risks to the near-term economic outlook,” Oliver, chief economist at AMP, said in a research note.

Maintaining the rules for longer would have imposed little cost on Australia’s largest state economy and may have helped slow case numbers, he said. “But their removal adds to the risk of a spike in cases and hospitalizations that is so large that it necessitates a return to hard lockdowns.”

The debate about maintaining some restrictions comes as Australia shows signs of rapid recovery from a protracted lockdown that caused the economy to contract last quarter. Mobility and activity data had been surging in the lead up to the holiday period as pent-up demand is released.

Cases in New South Wales have now spiked through 2,500 a day, compared with around 200-300 early in the month as the highly-contagious omicron variant spreads. Yet Premier Dominic Perrottet is sticking to his position, saying he’s focused on hospitalizations -- which remain relatively low -- with more than 93% of the state’s adult population now vaccinated. 

The public is showing signs of taking matters into its own hands. Four out of five Australians have either canceled or remain undecided about their summer holiday travel plans, while one in two have no confidence in traveling interstate, a survey commissioned by the Tourism & Transport Forum showed.

New South Wales accounts for around a third of the nation’s economic output and is home to almost a third of Australians.

“The further relaxation of restrictions has unnecessarily and significantly added to the risk of another setback in the economy,” said Oliver. “Hopefully the relaxation in NSW will quickly be reversed in the interest of public health and the economy.”

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