FIRE sector vampire continues to bleed economy dry

By Leith van Onselen

Last week’s national accounts release for the March quarter confirmed that Australia’s FIRE economy – Finance, Insurance and Rental, Hiring & Real Estate Services – continues to eat its host, surging to a new record high (12.0%) share of the Australian economy (see next chart).

Since financial markets were first deregulated in the mid-1980s, the FIRE sector has grown at roughly twice the pace of the rest of the economy, sucking the life out of the productive sector:

Within the FIRE economy, the finance and insurance industry increased its share of the Australian economy to a record 9.0% of GDP in the March quarter:

With the finance and insurance industry growing at well over twice the pace of the rest of the economy since financial deregulation, with diverging trends:

The FIRE sector has certainly been enjoying life recently. Households have re-leveraged, as evident by the trend decline in the household savings rate over the past four years to the lowest level since the GFC:

Along with the rise in the ratio of mortgage debt-to-GDP to an all-time high 96% of GDP as at March:

Not surprisingly, Australian house prices continue to decouple from rents as capital has flooded into non-productive housing:

That said, one positive to come out of the March quarter accounts is that the banks’ exposure to offshore funding has begun to retrace:

With the ratio of offshore borrowings to GDP falling to 49% of GDP, down from a peak of 55% in late-2015:

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