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.
Yesterday’s ABS labour force release for August revealed a mixed Australian youth labour market – i.e. those aged 15 to 24 years old – with falling unemployment offset by a record rise in underemployment. The trend headline unemployment rate fell slightly to 11.80% in August: Total employment growth for those aged 15-24 years rose marginally
A lot more. Via Domain: Attorney-General Christian Porter says he is prepared to legislate “significant” wage theft penalties – likely to be up to 10 years’ jail – to deter the “unacceptable” practice of persistently underpaying workers, as the government grapples with stagnant wages and a slowing economy. In a wage theft discussion paper to
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The Australian Bureau of Statistics (ABS) yesterday released its Australian Demographic Statistics for the March quarter of 2019, which revealed that Australia’s population continues to grow manically led by surging net overseas migration (NOM), mostly into Sydney and Melbourne. According to the ABS, Australia’s population rose by 1.6% in the year to March 2019, well
The Australian dollar has resumed its great sink today as bank and market observers pile in for rate cuts: Bonds are on fire: Stocks too: Dalian is weak: But nobody cares as Big Iron reaches for the skies. FMG hilarity! And Big Gas for that matter: Big Gold is forgotten though at least its AUD
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Victoria water minister has ruled-out building any new dams, claiming that climate change and lack of rain fall will render them useless. From The Australian: Water Minister Lisa Neville says water in the state’s rivers will halve by 2065, citing this forecast in her refusal to build even one dam, even though over that period
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Via Domain: Job advertisements in Sydney and Melbourne are falling at double digit rates, prompting concern unemployment may be increasing despite cuts in official interest rates and the Morrison government’s tax cuts for low and middle income earners. Figures to be released today by SEEK show overall job ads have fallen by 8.6 per cent
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This morning I was interviewed by Luke Grant from Radio 2GB to discuss yesterday’s article on Australia’s “bullshit” services jobs boom. Below is the exerpt: Leith Van Onselen, from Macrobusiness – the ‘Unconventional Economist’, about his article ‘Australia’s services “bogus” jobs boom He writes ‘the types of services jobs that have been created are more
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