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.

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A deep dive on the economy, politics and Australia’s housing market

On Tuesday night, I had a fabulous discussion with Martin North on the Australian economy, the state of politics and policy making, and Australia’s housing market. Key topics included: The Albanese Government’s upcoming increase in Australia’s immigration intake to record levels, and what it means for the economy and living standards. The idiocy of growth

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Australian company insolvencies jump

Deloitte Access Economics’ Weekly Economic Briefing examines Australian company insolvencies, which jumped 23% year-on-year in June as companies grapple with high inflation, rising interest rates, shortages and a slowing global economy. The good news, however, is that insolvencies are still tracking below pre-COVID levels; although that will likely change over the year ahead: The average

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Migration Council Chair demands cheap visa flood

The ACTU’s brilliant submission to the upcoming Jobs & Skills Summit demanded that all temporary skilled migrants be paid at least average weekly full-time earnings: Increase the Temporary Skilled Migration Income Threshold (TSMIT) – the salary floor for temporary skilled migrants – to Average Full Time Weekly Earnings (approx. $90,916.80 at November 2021) to be indexed

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Coalition PC lackey blames low productivity for poor wage growth

In 2018, I lamented how the “esteemed government organisation – the Productivity Commission (PC) – is facing politicisation, with Treasurer Scott Morrison appointing former Liberal Party staffer, Michael Brennan, to head the Commission”: Brennan is a former staffer to former Liberal Finance Minister Nick Minchin and also served in that role for former Victorian Liberal

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Dan’s Suburban Rail Loop strangles Victorian Budget

To nobody’s surprise, the cost of building Melbourne’s suburban rail loop has doubled to $125 billion, with another $75 billion projected for operating expenses. That’s according to the Victorian Parliamentary Budget Office: According to the state parliament’s budget office, which published a report overnight, the north and east sections of the rail loop could blow

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Australia’s jobs boom ends, extinguishing RBA rate hikes

The Australian Bureau of Statistics (ABS) has released labour market data for July, which showed that Australia lost 40,900 jobs (-0.3%) over the month, with hours worked also falling by 16 million (-0.8%): However, because the labour force participation rate fell by 0.3% to 66.4%, the nation’s unemployment rate actually fell by 0.1% to 3.4%

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NAB scaremongers as real wages plunge to 2012 levels

NAB’s economics team has talked-up yesterday’s soft wage growth data, claiming private sector wages are in fact booming. In turn, this justifies further aggressive interest rate hikes from the RBA: NAB director of economics and markets Tapas Strickland had a clear message: “Ignore the headline [Wage Price Index] excluding bonuses.” Instead, he said to look

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Labor fruit cake demands 800,000 migrants a year

Meet Cameron Milner. He’s a former Queensland Labor Secretary that was also then Opposition leader Bill Shorten’s top advisor. Milner has penned one of the most egregious articles I have ever read in The Australian attacking the “whining social services lobby groups”, defending the Stage 3 tax cuts, and lobbying for “a huge increase in

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Albo & RBA annihilate households

In my ten years of observing the hideous Australian macro sausage factory in action on this blog, I have never seen a more stupid and harmful series of policy blunders than what we have today on both the monetary and fiscal sides of the equation. The two are gutting Australian living standards when they should

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Australian weekly economic indicators bounce

Roy Morgan CEO, Michelle Levine, has provided a useful update on Australian politics and economics, based on the firm’s latest surveys. First, Roy Morgan’s latest voting intentions tracker shows that the Labor Albanese Government has extended its electoral lead over the Coalition by 1%, and now leads 53% to 47% on a two-party preferred basis.

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Aussie leading index dead cat bounces

Westpac’s Bill Evans with the index. It’s difficult to see how the economy could bounce in the face of aggressive interest rate hikes from the RBA and crashing house prices. Household consumption drives the economy and should fall as both rising mortgage repayments and the negative wealth effect from falling house prices bite.  ____________________________________________________________________________________________ Growth

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Soft Aussie wage growth tempers RBA rate hikes

Australian wage growth missed economists’ expectations in the June quarter of 2022, according to new data released today by the Australian Bureau of Statistics (ABS). Total wages grew by only 0.72% in the June quarter, missing analyst’s expectations of 0.8% growth. Private sector wages grew by 0.72% over the quarter, whereas public sector wages grew

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Brilliant unions launch counter-attack against immigration deluge

I was wrong about Australia’s union movement. Yesterday I attacked them for seemingly folding “like a cheap deck of cards” to the Albanese Government’s ‘Big Australia’ immigration policy. Now I have egg on my face, with the ACTU releasing a brilliant submission to the upcoming Jobs & Skills Summit, making their support for expanding the

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Rising cost of living cuts retail sales

The latest Roy Morgan business survey showed that confidence is lowest for the retail sector, which has halved over the past year: A new Roy Morgan survey gauging Father’s Day gift spending shows that Australians are preparing to send 7.7% less on gifts than they did last year amid rising concerns surrounding cost-of-living: Australians are

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Weak unions meekly push back against ‘skilled’ visa tsunami

The Business Council of Australia (BCA) is calling for Sydney’s Aerotropolis and Melbourne’s Fishermens Bend to be covered by a designated area migration agreement (DAMA). DAMAs represent a formal agreement between the federal government and a regional, state or territory authority that gives easier access to overseas workers than the standard skilled migration program. However,

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Consumer confidence dead cat bounces

After last week crashing to its lowest level since April 2020, the ANZ-Roy Morgan weekly consumer confidence index rebounded 4.9% to its highest level since late June: The key movements in the sub-indexes were as follows: Consumer confidence jumped 4.9% last week, completely reversing the drop following the RBA’s August rate hike. Confidence is the

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Albo’s migrant scab grab foretells another ‘lost decade’ for Aussies

After the Albanese Government on the weekend confirmed that it would ramp-up immigration to record levels following next month’s Jobs & Skills Summit, a conga line of special interests have demanded their fill. The Business Council of Australia (BCA) has demanded four year visas for temporary ‘skilled’ migrants alongside a guaranteed pathway to permanent residency:

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Economists back gas reservation and super profits taxes

The latest survey of “48 leading economists” by the Economic Society of Australia and The Conversation asked “what other actions could authorities take to bring the inflation rate down?”. The second and third most popular choices related to reining in the gas cartel via domestic reservation and super profits taxes on fossil fuel producers: It’s

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Property Council cries as working from home takes over

The Property Council has labelled Melbourne’s return-to-office rate as “shameful”, crying for empty office buildings to be filled: Damning new figures from the Property Council of Australia, obtained exclusively by the Herald Sun, shows the city’s rebuild has taken a hit, with office occupancy levels in July well less than half of the pre-Covid baseline

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“Grand bargain” to open immigration floodgates

Details have emerged of a ‘grand bargain’ between business and unions that is likely to be struck at the federal government’s upcoming jobs and skills summit. It is expected to see migration boosted in the October budget to help fill urgent skill and labour shortfalls, in return for longer-term policies on training Australians: A grand