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.
As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for December, which registered a 28,900 increase in total employment and a decrease in the headline unemployment rate (from 5.2% to 5.1%). In trend terms, the unemployment rate also fell to 5.1%: Again, total employment rose by a seasonally adjusted
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Australia’s retail apocalypse continues, with German giant Kaufland announcing an “orderly withdrawal” from Australia despite sinking more than half a billion dollars of investment: The company had been set to open as many as 30 stores in Australia and had bought a number of warehouse and retail locations around the country… In June last year
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Despite a slightly improved December month on month: The trend remains down: Everywhere but Scumville: I expect unemployment to grind higher this year.
Via Westpac: It is entirely reasonable to have expected that the Index would have fallen during this period of devastating bushfires. Perhaps it is somewhat surprising that the fall in the Index was not more severe particularly in light of the 5.8% fall we saw during the Queensland floods in 2011. However the fall in
In its 2016 Migrant Intake into Australia report, the Productivity Commission (PC) estimated that the circa 9,000 elderly permanent parental visas granted every year cost Australian taxpayers between $2.6 and $3.2 billion in present value terms, or between $335 000 and $410 000 per elderly adult, with the cost rising over time as numbers increase.
Nick Klomp – vice-chancellor of CQUniversity – has attacked the wilful neglect of Australian regions, which are treated like ugly cousins of Australia’s cities: Like it or not, Australia’s rise or fall over coming years will be played out in the regions, by the regions. The main problem is this: Regional Australia lacks both the
After dropping a roofy in her drink, amateur Treasurer Josh Recessionberg has had his way with the confidence fairy, writing at The Australian: With that [trade] deal concluded and concerns about a “no-deal” Brexit having diminished, the IMF updated its global economic outlook yesterday and pointed to tentative signs of improved market sentiment. …The IMF
There are two angles to examine as coronavirus spreads in China and South East Asia. The first is health related. The second is economic. Australia is about see a wave of new Chinese tourists and students just as coronavius slips the CCP noose. Some 350k Chinese toursists arrive through the January/February period, a large swath
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A majority of respondents in all developed countries who took part in the latest Edelman Trust Barometer do not think they will be better off in five years’ time, with most believing that capitalism in its current form does more harm than good. Richard Edelman, CEO of Edelman, notes that in the 20 years that
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Says two year old index. Via CBA’s consumer intentions survey: Home Buying Spending Intentions Home buying intentions moved higher again in December and now sit at a record high HSI readings indicate that the pick up in dwelling prices in H2 2019 may continue into H1 2020 The turn in the HSI is also a sign
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From SUL just now: Nasty for BCF anf MacPac as the bush burns but otherwise not bad.
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