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.
By Ross Elliott, cross-posted from The Pulse We’ve been here before – concerns about our capacity to house a large population are not new. But lately, hostility to rapid rates of population growth is gaining traction. There have been calls for a population enquiry and former PM Abbott has called for immigration (and hence population
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released visitor arrivals and departures data for the month of June, which again posted turbo-charged net annual permanent and long-term arrivals. In the year to June 2018, there were 808,480 permanent and long-term arrivals into Australia – up 5% from June 2017 and an
By Leith van Onselen The Governance Institute of Australia has released its Ethics Index for 2018, which reveals that the overall perception of ethical behaviour across Australia declined in 2018, led by the FIRE sector (Finance, Insurance and Real Estate Services), which is perceived as the least ethical in Australia. Perceptions of banks, real estate
It is amusing watching Australia’s worst economic forecaster, the Reserve Bank, struggle desperately to bend reality to its will. Governor Phil Low palavering in Parliament Friday: Taken together, these data are consistent with our view that wages growth and inflation will pick up gradually over the next couple of years as the labour market continues
By Leith van Onselen After Fraser Anning’s idiotic speech last week, I was concerned that the immigration debate would be silenced by the elite and Fake Left’s outcry of ‘racism’, thereby preventing much needed discussion about the real issues of infrastructure, housing, the environment, and general liveability. My concerns have been proven wrong, however, with
By Leith van Onselen One of the notable features of the Australian labour market in the 10 years since the Global Financial Crisis hit has been the boom in ‘caring’ jobs in health care & social assistance and education, not to mention public sector, construction, and so-called ‘Professional, Scientific and Technical Services’ jobs: The boom
By Leith van Onselen Below is RBA Governor Phil Lowe’s opening statement to the House of Representatives Standing Committee on Economics: Thank you for the opportunity to appear before the Committee today. These hearings are an important part of the accountability process for the Reserve Bank of Australia. As usual, my colleagues and I will do
By Leith van Onselen Finding an economist opposed to Australia’s mass immigration ‘Big Australia’ policy is a difficult task. There’s me, Judith Sloan, Ross Gittins, Gareth Aird, Henry Ergas and now Stephen Koukoulas (aka ‘The Kouk’) who has penned an excellent article today as Business Insider: There are many instances where the dismal science of
By Leith van Onselen The latest data on household debt from the RBA shows that Australia’s household debt-to-disposable income ratio hit a record high 190% in March 2018: With this in mind, it’s interesting to read Elliot Clarke’s (Senior Economist at Westpac) analysis showing that US household debt-to-disposable income (90%) is now back to 2002
By Leith van Onselen After Melbourne on Tuesday lost its bogus title of “most liveable city”, Lord Mayor Sally Capp offered a rare dose of honesty on the primary reason why: Calling Melbourne a “victim of its own success,” Mayor Capp said the city’s growth had made it harder to meet the liveability criteria. “You
By Leith van Onselen Harold Mitchell has penned an article today in Fairfax warning that the recent sharp decline in new car sales is like the “canary in a coal mine” for the economy: Car sales are dropping. July sales were down 8 per cent and followed May and June which recorded reduced volumes on
By Leith van Onselen If you want a textbook example of how Australian academia has lost its credibility, look no further than the below analysis from University of Western Sydney Economics Professor Raja Junankar in The Conversation: Many who fear Australia’s population boom believe we should be cutting down on immigration. They blame immigration for
By Leith van Onselen This week’s key economic data revealed another contradiction. On Wednesday, it was revealed that Australian wages growth was stuck near record lows, growing by just 2.06% in the year to June (1.99% in the private sector): Then yesterday, it was revealed that Australia’s unemployment rate has fallen to the lowest level
By Leith van Onselen Yesterday’s ABS labour force release for July revealed a softening Australian youth labour market – i.e. those aged 15 to 24 years old – as both full-time and part-time jobs growth weakens. While the trend headline unemployment rate crashed to 11.13% in July from 11.45% in June: Whereas total employment growth
By Leith van Onselen In the week ended 16 August 2018, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, declined another 0.18%: Values fell across three major markets and rose in two: So far in August, home values have fallen by 0.27%, driven by Melbourne, Sydney and Perth:
By Leith van Onselen It seems Australia’s latest export growth industry – selling university degrees (and residency) to international students – is under threat as China competes harder for international students. From The ABC: Australia has much invested in its ability to attract large numbers of young Asians for tertiary study. The income they bring
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released the Average Weekly Earnings (AWE) data for the six months to May 2018. A breakdown of the key changes are provided below: According to the ABS, on a seasonally-adjusted basis, national total AWE increased by 1.2% in the six months to May 2018
By Leith van Onselen As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for July, which registered a 3,900 decrease in total employment but a 0.1% fall in the headline unemployment rate to 5.3%, driven by a fall in labour force participation. In trend terms, the unemployment rate fell
ABS Labour Force for July is out and the news is weakness: SEASONALLY ADJUSTED ESTIMATES (MONTHLY CHANGE) Employment decreased 3,900 to 12,575,200. Full-time employment increased 19,300 to 8,587,500 and part-time employment decreased 23,200 to 3,987,700. Unemployment decreased 5,700 to 706,000. The number of unemployed persons looking for full-time work increased 2,300 to 504,100 and the
Via the AFR: A worsening of drought conditions in Australia could put market forecasts for economic growth at risk warns Citigroup, wiping more than half a percentage point from GDP growth in 2018-19 assuming the economy experiences a 20 per cent fall in farm production. There is no El Nino at the moment but the
It’s like trying draw blood from a stone. Some charts from Westpac on the wage price index: Anyone looking at that little lot and seeing ANY chance of reaching RBA and Treasury goals needs to take the red pill. We’ve chronicled many times why it’s happening: terms of trade falls which although paused are still
By Leith van Onselen Yesterday’s wages price index released by the ABS revealed a softening of annual wages growth to just 2.1%: When adjusted for underlying inflation, real wages increased by a measly 0.2% in the year to June: However, there is a big disconnect between the private and public sectors. The private sector –
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By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released its Labor Price Index for the June quarter of 2018, which revealed a trend weakening in wages growth from already anaemic levels: According to the ABS, wages grew by 0.62% (s.a.) and 0.47% (trend) in the June quarter. Private sector wages grew
From Martin North today: The latest edition of the DFA Household Financial Confidence Index to end July 2018 remains in below average territory, coming in at 89.6, compared with 89.7 last month. We had expected a bounce this month, in fact the rate of decline did slow, thanks to small pay rises for some in the
By Leith van Onselen It’s amazing how an election campaign suddenly forces politicians to speak in the public interest. Fresh from flogging-off the Port of Melbourne, Victorian Treasurer Tim Pallas last year confirmed that more asset sales were on the agenda: “I have said since before we formed government that we were committed to the idea
Via Bill Evans: The consumer mood deteriorated in August, giving back about half of the surprisingly strong gains seen in June and July. Those gains look to have been partly a positive response to the tax cuts announced in the May Budget, which passed into legislation in June, the first round of cuts coming into
By Leith van Onselen “Smoke and mirrors”. That’s the best way to describe the Coalition’s fake 21,000 cut to the permanent migrant intake. From The ABC: International students, graduates and people on bridging visas are continuing to fuel Australia’s immigration boom. The number of temporary visa holders in Australia in June increased by 107,000 in
By Leith van Onselen Last week, it was revealed that Qantas had secured a special migration deal with the federal government to bring in foreign pilots: The labour agreement granted last month allows the airline’s regional arm, QantasLink, to bring 76 pilots and instructors into the country for up to four years, avoiding new two-year restrictions
By Leith van Onselen Over the weekend, the poster boy for the globalist ‘Fake Left’, Greg Jericho, penned a spurious article in The Guardian spruiking Phil Lowe’s debunked immigration propaganda and claiming that Australia’s mass immigration ‘Big Australia’ policy was not contributing to weaker wages growth: Low wages growth, congestion, poor schooling, crime – pretty
