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.


Adani promises no 457s

From the AFR: Indian multinational Adani will employ no foreign workers under 457 visas as part of the workforce for the $21 billion Gaililee Basin coal mine, Queensland premier Annastacia Palaszczuk said. The premier said Adani, which is an Indian listed company that is 75 per cent owned by the wealthy Adani family, had given an “iron clad


Westpac: GDP gunna shrink

From Westpac: Q3 net exports:  –0.2ppts Net exports have been trending higher. However, not so in mid-2016. A subtraction of 0.1ppt in Q2 has been followed by a subtraction of 0.2ppts in Q3. We had expected a contribution of 0.2ppts. Exports provided the surprise, with volumes increasing by only 0.3% in Q3, constrained by a


Australia’s current account deficit narrows

By Leith van Onselen The commodity price boomlet has delivered a big improvement in Australia’s current account deficit (CAD), which narrowed by $4.6 billion (29%) to $11,4 billion over the September quarter: The CAD also improved by $9 billion (12%) over the year: Net foreign debt continued to climb, albeit at a slower pace, reaching


Australia’s terms-of-trade jumps

By Leith van Onselen Within today’s data dump of balance of payments data that feeds into tomorrow’s September quarter national accounts release was the important news that Australia’s terms-of-trade has jumped, increasing by 4.4% in seasonally adjusted terms over the quarter and by 2.7% in trends terms: Over the year, the terms-of-trade rose by 1.4%


Dick Smith to advise Hanson on immigration

By Leith van Onselen Things just got real with Dick Smith backing Pauline Hanson’s firm stance on immigration and offering to advise One Nation on immigration policy. From The Australian: The buy-Australia campaigner, who will meet Ms Hanson before Christmas to discuss her policy, predicts she will enjoy a Trump-like wave of support in traditionally


Greens’ urban infill chews-up green space

By Leith van Onselen Last week I lambasted The Greens for maintaining tacit support for high immigration while lobbying strongly against urban sprawl in favour of in-fill development, which I argued was totally inconsistent with their policy goal of affordable housing. This quote from The Greens’ co-deputy leader, Scott Ludlam, encapsulates the party’s position: The


GDP still weak…

From Westpac: The Business Indicators survey provides an estimate of business inventories and a partial update on incomes. Inventory levels increased by a relatively solid 0.8%, exceeding expectations (mkt median & Westpac 0.3%). This will see inventories add 0.2ppts to Q3 GDP growth. We had anticipated a neutral impact. We suspect that some of this inventory


Australian productivity posts modest rebound

By Leith van Onselen A month after the Productivity Commission published a damning assessment of Australia’s productivity decline over the past 12 years, the ABS has released new data showing that multi-factor productivity (MFP) growth rebounded in 2015-16, although it remains poor: On an hours worked basis, market sector multifactor productivity (MFP) grew 0.9% in


Mineral & petroleum exploration rises in Q3

By Leith van Onselen The Australian Bureau of Statistics (ABS) today released its Mineral & Petroleum Exploration data for the September quarter, which posted rises. Nationally, expenditure on minerals exploration rose by a seasonally-adjusted $3.5 million (+1%) over the September quarter (see next chart). This rebound was driven by QLD (+$6.3 million) and WA (+$5.6


Inventories ride in to save GDP

From ABS Business Indicators: SEPTEMBER KEY FIGURES Jun Qtr 16 to Sep Qtr 16 Sep Qtr 15 to Sep Qtr 16 % % Sales of goods and services (Chain volume measures) Manufacturing Trend -0.7 -3.5 Seasonally Adjusted -1.9 -4.9 Wholesale trade Trend 1.5 4.7 Seasonally Adjusted 0.4 4.4 Inventories (Chain volume measures) Trend 0.4 0.4


Will Australia print negative GDP?

From Macquarie:  Australia’s 3Q16 GDP outcome is likely to surprise in both directions and throw up many questions. We have some answers. Our forecast is for the economy to grow, just, given disappointing outcomes for construction, retail volumes, and business investment.  Annual rebenchmarking revisions add a degree of uncertainty to what the pace


IT rent seekers demand 457 visa subsidies

By Leith van Onselen On Friday, the Australian Population Research Institute (APRI) released a damning report chronicling the widespread rorting of Australia’s visa system, which has seen huge numbers of foreign workers flood Australia’s labour market, in the process crowding-out employment opportunities for resident Australians. The most damning assessment was given to the IT sector,


Australian Q3 GDP Preview

From Westpac: The Australian National Accounts, to be released on Wednesday December 7, will provide an estimate of economic activity for the September quarter. • In the year to June, real GDP grew by 3.3%, an above trend pace, with trend judged to be 2.75%. Activity was supported by lower interest rates (housing) and a


Population ponzi overruns Sydney’s public transport

By Leith van Onselen Last month, ABC News published an article revealing how almost all of Sydney’s trains are over capacity during the morning peak. Now, an annual snapshot by the NSW Audit Office has revealed public transport use is soaring across Sydney placing even more strain on crowded trains and busses, which rarely run


Coalition passes bill to curb VET rorts

By Leith van Onselen Following scandal after scandal, and a $3 billion Budget blow-out over four years, the Turnbull Government last night passed a bill through the Senate imposing stricter eligibility criteria for Vocational Education and Training (VET) courses, as well as capping student loans. From The ABC: The Senate last night passed a bill


Immigration overflow: the systemic rorting of Australia’s visa system

By Leith van Onselen The Australian Population Research Institute (APRI) has released an alarming new report entitled “Immigration overflow: why it matters”, which examines the widespread rorting of Australia’s visa system, as well as the crushing impact of Australia’s high permanent immigration program on Sydney and Melbourne. The major findings from the report, which was


Unemployment crisis hits the smaller states

By Leith van Onselen Roy Morgan Research (RMR) has released a new special report examining unemployment and underemployment across Australia’s states. The report unemployment and under-employment are a growing problem in Australia’s four smallest States of Queensland, Western Australia, South Australia and Tasmania – all four of which now have total unemployment and under-employment above


Coalition MPs want independent scrutiny of trade deals

By Leith van Onselen Disquiet within the Turnbull Government continues to grow with a Government-dominated parliamentary inquiry calling for greater independent scrutiny of future trade deals. From The AFR: The Greens spokesman for trade, Peter Whish-Wilson, slammed the assessment [of the TPP] as a “set of talking points” and said the Productivity Commission needed to


WA drives sharp fall in Q3 capex

By Leith van Onselen The Australian Bureau of Statistics (ABS) today released data on capital expenditures (capex) for the September quarter of 2016, which registered a sharp 4.0% seasonally adjusted fall in capex volumes over the quarter and a 13.7% decrease over the year (see below table). While Houses and Holes has covered the forward-looking


Manufacturing PMI bounces

From AIG:  The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI® ) increased by 3.3 points to 54.2 points in November, indicating a more convincing expansion after more stable conditions recently (results above 50 indicate expansion, the distance from 50 points indicates the strength of expansion).  The expansionary conditions were broad-based,


Suburb’s new train already overrun by population ponzi

By Leith van Onselen I’ll ask the question yet again: What do you get when you shove an MCG-worth of people into a city each year, without sufficient new infrastructure investment? Answer: Infrastructure bottlenecks, rising congestion, smaller and more expensive homes, and lower overall living standards. Yet this is exactly what Melbourne has done as