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.


East Coast apartment boom drives inner-city schools shortage

By Leith van Onselen The lack of planning and foresight to cope with the never-ending population (immigration) influx into Australia’s big cities never ceases to amaze. The latest example of negligence comes from Brisbane, where the unprecedented boom in high-rise apartments (see next chart) has driven a shortage of inner-city school places. From The SMH:


China FTA failing to deliver benefits as promised

By Leith van Onselen From The Australian today comes the shock horror admission that the China-Australia Free Trade Agreement (ChAFTA) is failing to deliver benefits as promised by the Department of Foreign Affairs and Trade (DFAT) and the Coalition Government: Australian farmers and food processors lined up to support the China-Australia free trade agree­ment in


NSW, VIC parasites continue to lead ponzi economy

By Leith van Onselen CommSec has released its latest State of the States report, which once again ranks New South Wales and Victoria on top due largely to a combination of strong population growth, housing, and debt-fueled consumption: Each quarter CommSec attempts to find out by analysing eight key indicators: economic growth; retail spending; business


Australia needs to invest in tourism if it wants the boom to continue

Cross posted from The Conversation by David Beirman Senior Lecturer, Tourism, University of Technology Sydney Tourism has been the good news story for Australia’s economy over the past year. The latest numbers show 8.2 million international tourists visited Australia in the year to November. This is an 11.4% increase on the year before. Domestic tourism also


Is Australia’s manufacturing rebound sustainable?

By Leith van Onselen The latest quarterly employment report from the ABS registered strong growth in manufacturing employment in the year to November 2016: Helping to offset some of the heavy manufacturing job losses recorded since the onset of the GFC: The result, to me at least, seemed perverse given the gradual closing of the


High immigration has masked Australia’s economic decline

By Leith van Onselen Finally a journalist from The ABC has acknowledged the economic elephant in the room: that Australia’s so-called economic out-performance over the past decade or so has been driven, to a great extent, by its world-beating immigration program, which has not raised individual living standards: Australia has ridden 25 years of economic


Do-nothing Malcolm is failing badly on jobs

By Leith van Onselen When the Coalition was first elected in late-2013, Employment Minister, Eric Abetz, trumpeted that the Government would deliver a “powerhouse economy” that will produce one million jobs over five years and two million jobs over 10 years. Prime Minister Malcolm Turnbull has since remained silent on the jobs pledge but continues


Youth labour market continues to deteriorate

By Leith van Onselen Yesterday’s ABS labour force release for December revealed a further rapid deterioration in labour market conditions for those aged 15 to 24 years old. As the headline unemployment rate continued to rise, from 13.12% in November to 13.19%: Total employment growth for those aged 15-24 years of age also turned more


Unemployment rises in December

The headline unemployment rate for December has risen to 5.8% from an upwardly revised 5.7% From the ABS: SEASONALLY ADJUSTED ESTIMATES (MONTHLY CHANGE) Employment increased 13,500 to 11,985,900. Full-time employment increased 9,300 to 8,176,500 and part-time employment increased 4,200 to 3,809,500. Unemployment increased 14,700 to 741,100. The number of unemployed persons looking for full-time work


Why Australia should go it alone on trade

By Leith van Onselen James Pearson, CEO of the Australian Chamber of Commerce and Industry (ACCI), has penned a timely contribution to the debate over trade, arguing that it would be better for Australia to opt for unilateral reforms in trade, industrial relations and competition policy, rather than relying on flawed free trade agreements (FTAs).


Retirement reforms boost labour participation

By Leith van Onselen For many years, the Australian Treasury spruiked its Three P’s framework for rising living standards. Under this framework, we were told that Australia must: 1) boost productivity; 2) raise workforce participation; and 3) increase the population via skilled migration, if the nation was to continue to enjoy rising living standards. Personally,


WA feels wrath of falling mining investment

By Leith van Onselen The ABS has released engineering construction data for the September quarter of 2016, which revealed a 4.7% seasonally adjusted fall in the value of work done over the quarter, a 23.9% fall over the year, and an ongoing reduction in the construction pipeline. According to the ABS, private sector engineering construction


Westpac: Consumer sentiment remains pessimistic

From Westpac’s Elliot Clarke: The Westpac Melbourne Institute Index of Consumer Sentiment rose by just 0.1% in January, from 97.3 in December to 97.4. Following December’s 3.9% decline, Sentiment was little changed in January, rising just 0.1%. At 97.4, pessimists clearly outnumbered optimists for a second consecutive month in January (100 being the neutral point).


Australian federalism is an idea whose time has ended

Cross posted from The Conversation by Bede Harris Senior Lecturer in Law, Charles Sturt University   Former prime minister Bob Hawke’s recent call for the state governments to be abolished is worthy of support. Labor has historically been in favour of centralisation, while the Coalition has supported federalism. So, Hawke’s position is not surprising. But leaving


Young people must be protected from automation

Cross-posted from The Conversation: As technology advances and changes our economy, young jobseekers will bear the brunt of changes in the labour market. With the increasing automation of jobs traditionally occupied by young workers and professionals, a whole generation could face a dystopian future if policymakers fail to act. A report by the Committee for


Chinese tourism boom pushes new heights

By Leith van Onselen The Australian Bureau of Statistics yesterday released its overseas short-term arrivals and departures figures for November, which continued to show a trend rise in the number of inbound tourists, with Chinese arrivals continuing to boom. The number of short-term visitor arrivals rose 0.4% in November in trend terms, whereas short-term resident


Immigration hovers near 9-year lows

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released visitor arrivals and departures data for the month of November, which registered a small rise in annual immigration. In the year to November 2016, there were 711,110 permanent and long-term arrivals into Australia – up 5% from October 2015 but well down from