Last week’s national accounts release for the September quarter revealed that Australia’s FIRE economy – Finance, Insurance and Rental, Hiring & Real Estate Services – has shrunk relative to the Australian economy, falling to 11.6% from a peak of 11.8%:
This follows more than 30-years of explosive growth since financial markets were first deregulated in the mid-1980s:
Within the FIRE economy, the finance and insurance industry’s share of the Australian economy also slid to 8.7% from a record high 8.8% of GDP:
This follows even stronger growth since financial deregulation:
The retracement in the FIRE sector’s relative growth follows the collapse in credit growth, which reflects dis-leveraging by Australian households:
This dis-leveraging is also reflected in the household savings rate, which rose further in the September quarter:
Authorities and the banks are hoping that recent boom in house prices, alongside interest rate cuts and easier access to credit, will encourage households to leverage up once more.
But with the domestic economy slowing, unemployment rising, and incomes flatlining, the jury is out.
