Australian Economy

The “miracle” Australian economy (with its famous run of 24 years without a recession) is an amalgam of pre-modern and post-modern industries with very little in between.

Most economies run at least partially upon the productivity gains produced out of manufacturing and ‘making things’ but in Australia productive investment is supplanted with commodity exports (which make up half of exports) and the recycling of the resultant income is deployed as cash flow for borrowings offshore to pump house prices.

The former step is basically the selling of dirt, a pre-modern activity. The second step is managed via the sophisticated use of derivative markets and is essentially a post-modern activity.

Not that GDP cares given it is only the mindless measure of whirring widgets.

However, both of these activities systematically reduce economic competitiveness by inflating both input costs and the currency. “Dutch disease” by another name. This continuous “hollowing out” of productive activity means the broader economy relies heavily upon the non-stop import of capital, either in the form of debt or in the form of assets sold to foreigners, to generate ongoing income growth.

So long as the underlying income from dirt keeps flowing then the leveraging into house prices that supports consumption can continue, supported by both tax distortions and government spending.

If, however, the dirt income flow halts the hollowing out of modern industry will leave the Australian economy very exposed to a current account adjustment. We saw this in the global financial crisis but the flow of dirt income was restored sufficiently quickly to prevent any deep adjustment.

A second risk is that the debt accumulation simply becomes overly onerous for the underlying economy to service, also resulting in a current account adjustment. Well north of $1trillion of the debt is owned externally and household debt is a world-beating 186% of GDP so this is a real risk.

It is offset by a relatively clean public balance sheet that deploys fiscal stimulus in times of economic stress. However, in recent years, as both of the two above risks have increased, the public balance sheet has deteriorated as well, setting Australia up for a famous adjustment to end its famous bull run.

MacroBusiness covers all apposite data and wider analysis of these issues daily.


Collapse of car manufacturing will harm overall R&D

Cross-posted from The Conversation: By the end of next year, car manufacturers Mitsubishi, Ford, Holden and Toyota will all have largely exited Australian manufacturing, taking their assembly lines overseas where the cost of production is significantly lower. This will create a vacuum for 260 businesses that supply accessories and components to the Australian automotive sector.


Population ponzi overruns low paid workers

By Leith van Onselen Earlier this year, the Senate Education and Employment References Committee has released a scathing report entitled A National Disgrace: The Exploitation of Temporary Work Visa Holders, which documented the abuses of Australia’s temporary visa system for foreign workers. The most damning assessments from the Committee were regarding Australia’s Working Holiday Maker


Reckoning of the Dumb Bubble

Macroeconomics is the business of knitting together the narratives of capital flows with investment-effective time frames. Of these two steps, mainstream market  economics is most challenged by the first, as evidenced by being wrong for the past eight years. The second part is simple for the plodders, just assume nothing will go wrong and you’ll mostly


Youth labour market continues to deteriorate

By Leith van Onselen Yesterday’s ABS labour force release for September revealed a further deterioration in trend unemployment for those aged 15 to 24 years old, with unemployment rising for the eighth consecutive month to 12.91%, versus 4.2% unemployment for the rest of the labour market (see next chart). As you can see in the


Mature males bear brunt of labour market adjustment

By Leith van Onselen Yesterday’s labour force data for September, released by the ABS, highlighted how male workers have borne the brunt of Australia’s labour market adjustment towards services. In the year to September 2016, male full-time employment declined by 0.7%, whereas part-time employment surged by 8.3%, taking total male jobs growth to an anaemic


Another CPI preview

From Westpac this time: • Westpac’s forecast for the headline CPI is 0.9%qtr which lifts the annual pace to 1.5%yr from 1.0%yr. • September is traditionally a stronger quarter (mostly due to the annual price resetting for administrated prices) with the ABS seasonal factor worth 0.3ppts. This results in the seasonally adjusted CPI rising a


Unemployment in detail: job insecurity deepens

By Leith van Onselen As summarised earlier, the Australian Bureau of Statistics (ABS) has today released its labour force report for September, which registered a 9,800 decline in total employment but a 0.1% fall in the headline unemployment rate to 5.6%. The result badly missed analysts’ expectations of 15,000 jobs growth. In trend terms, the


Job numbers miss

The ABS has released September job numbers are they are soft: TREND ESTIMATES (MONTHLY CHANGE) Employment increased 3,900 to 11,959,500. Unemployment decreased 3,100 to 715,100. Unemployment rate decreased by less than 0.1 pts to 5.6%. Participation rate decreased by less than 0.1 pts, but remained at 64.7% in rounded terms. Monthly hours worked in all


One quarter of Aussie workers financially stressed

AMP has released its 2016 Financial Wellness report, which reveals that Australians’ confidence in their finances continued to decrease in the past two years, from 54% of people confident in 2014 compared to 48% in 2016, with 24% of workers now classified as “financially stressed”. As shown in the below graphic, financial stress is most


The evidence is clear: population growth and prosperity are NOT linked

By Leith van Onselen This site has gone to considerable effort to demonstrate why high population growth (immigration), as advocated by Australia’s major political parties, is very likely  lowering the living standards of existing residents. Since 2003, Australia’s population has grown by a whopping 22% – way faster than other advanced English-speaking nations and 2.5


AEMO points finger at wind failure in SA blackout

Fresh from the AEMO’s investigation into the SA blackout: Pre-event The market was operating normally prior to the event. AEMO’s assessment concluded that, based on forecast conditions for Wednesday 28 September 2016, there was insufficient justification for reclassification for the loss of multiple transmission lines or generating units. The forecast severe weather was assessed as


DEEWR jobs ads turn down

DEEWR jobs ads for September are out and look even less august than they have for some time: Chart looks a bit toppy: Weakness was coast to coast: Thought the reliability of such a survey has to be questioned when there’s a boom in auto workers!    


ASIC head defends his impotence

By Leith van Onselen Greg Medcraft, chairman of the Australian Security and Investments Commission (ASIC), appeared on Lateline last night where he attempted to defend the organisation’s impotence in policing banking malfescence. Below are the key extracts: EMMA ALBERICI: Do you believe you have the capacity and the resources to weed out bad behaviour at


Leading index rises again

From Westpac: • The six month annualised growth rate in the WestpacMelbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, rose from +0.15% in August to +0.58% in September. The September reading is the second consecutive above trend result and follows fifteen


Chris Kohler: Only the “ignorant” worry about population growth

By Leith van Onselen On Monday, published the findings of CBA economist, Gareth Aird’s, excellent report warning that high population growth (immigration) is eroding the living standards of Australian households (read Aird’s report here). Strategically placed above this article was the above video featuring BusinessNow Editor and video presenter at The Australian, Chris Kohler


Short-term incentives the real innovation killer

Cross-posted from The Conversation: Malcolm Turnbull’s Innovation Agenda focused attention on startups and technology-driven innovation, but this is not enough to overcome the broader problems inhibiting innovation in Australia. Businesses may be looking to the government to ease red tape as a means to increase innovation but what’s really blocking innovation is the short-term view


In 2010 we were promised “sustainable immigration”. What happened?

By Leith van Onselen In the lead-up to the 2010 Federal Election, and following the controversy over Kevin Rudd’s proclamation that he supports a “Big Australia”, both new Prime Minister Julia Gillard and then opposition leader Tony Abbott promised Australians that they would pair-back population growth (read immigration) to “sustainable” levels amid growing concerns surrounding


Petrol creeping towards yearly high

From CommSec: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 1.0 cent per litre to 120.9 cents per litre in the week to October 16. Prices rose in all capital cities except Melbourne last week…  Last week the key Singapore gasoline price rose by US$1.60


ABC picks up anti-population ponzi narrative

By Leith van Onselen Yesterday, CBA senior economist Gareth Aird published an excellent report explaining how Australia’s strong population growth (read immigration) is actually reducing households’ living standards, and called for policy makers to place a greater emphasis on per capita measures of the economy, such as real per capita national disposable income (read report


Realistically, what will the commodity boomlet do for the economy

More orgasmic coverage of the commodity boomlet today at the AFR: An indicative estimate by The Australian Financial Review based on research by Commonwealth Bank and Treasury suggests a surge in income from exports could cut as much as $23 billion off the $63.2 billion budget deficit for 2016-17 and 2017-18. While at first glance


How strong population growth is lowering living standards

Cross-posted from Gareth Aird, senior economist at the Commonwealth Bank. Key Points Australia’s commendable aggregate growth rates are boosted by strong population growth. Per capita measures of the economy paint a more sobering picture, particularly those relating to income. Local policymakers should place a greater emphasis on per capita measures of the economy, rather than aggregate growth