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.
Via The Conversation: Sydney’s so-called “latte line” divides the city in two by jobs. Specifically, our research shows residents are segregated by both overall access to jobs and access to white-collar jobs. This highlights the jobs inequality underlying residential segregation. The white-collar jobs, in general, are concentrated in the north and east of the city
No greater fool apparently: Failed toy retailer Toys R Us will kick off it’s closing down sale this morning, stripping prices down by as much as 30 per cent in a fire sale that will send shockwaves through the nation’s $3.7 billion toy and games industry as it is forced to digest the liquidation. The
By Leith van Onselen The ABS has released its Australian Demographic Statistics for the December quarter of 2017, which revealed that Australia’s population continues to grow rapidly led by turbo charged net overseas migration (NOM), mostly into Sydney and Melbourne. According to the ABS, Australia’s population rose by 1.59% in the year to December 2017
Via Peter Martin today: As recently as 2012, just six years ago, wages were growing like they usually had, at a touch under 4 per cent per year. The rapid dive meant that by June 2014, two years later, they were growing at 2.4 per cent, the lowest rate since the last recession, and a
More evidence that the labour is softening at a good clip. Via DEEWR: Is that a sickening trend I see before me? Too early to say but not exactly powering…
From Westpac: • The six month annualised growth rate in the Westpac–Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, dropped from +0.83% in April to +0.11% in May. The Leading Index points to slowing growth over the second half of 2018.
Via the ABC: Foreign workers can be brought into Australia on the new 457-style visa as long as employers tried to hire Aussies first … on LinkedIn. The Government this month tweaked its rules around the new 457, now dubbed the “Temporary Skill Shortage” visa, reversing an earlier decision to reject ads on the social
Via the AFR: Telstra will split out its infrastructure assets into a new wholly-owned business for the potential to demerge the new division or bring in strategic investors. The plan is one aspect of a range of sweeping changes, labelled Telstra2022, which chief executive Andy Penn will present later on Wednesday, including the sale of
By Leith van Onselen The Australian Bureau of Statistics yesterday released its overseas short-term arrivals and departures figures for April, which continued to show a trend rise in the number of inbound visitors, with Chinese arrivals continuing to boom. The number of short-term visitor arrivals fell a seasonal 22.1% in April in original terms, whereas
Via the AFR: For Australian entrepreneur Andrea Myles, Prime Minister Malcolm Turnbull dropped what she refers to as his “Mandarin bomb” at exactly the wrong time. It was December last year, around the time Myles was recruiting participants for the third “China Australia Millennial Project”, which puts young Australian and Chinese entrepreneurs in a room
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Ghettoisation of Australian cities is the plan. It’s quantitative peopling and it’s going swimmingly right across the Sydney’s and Melbourne’s west at astonishing speed. Via The Australian: Demographic shifts driven by Australia’s immigration program threaten to lock Sydney’s western suburbs and parts of Melbourne into a bleak future, as low-income ethnic clusters struggle to cope
Via Westpac: Dynamics of the labour market continue to surprise us Total employment rose 12.0k in May but even though this is below what is considered to be a trend gain in the labour force, the unemployment rate dipped to 5.4% from 5.6%, a significant two percentage point drop in one month (5.40% from 5.60%
Some more top notch Aussie politicians at work today at the AFR: Controversial Chinese telco Huawei is hitting back aggressively over spy agencies’ efforts to veto it on national security grounds from involvement in the construction of the 5G wireless network, lobbying federal parliamentarians directly that its exclusion would push up costs for consumers, result
For once the RBA’s Luci Ellis making good sense: I’m grateful for the opportunity to speak to you today, and conscious of the infrastructure expertise in the room. There wouldn’t be anything I could add to what you know about project design, selection or funding. What I would like to do today is place infrastructure
By Leith van Onselen Commencing today, MB will produce a monthly chart pack on the Australian economy for paid subscribers. These charts are broken down by topic and presented without comment. They are intended to give readers a birds-eye view of the economy and draw on data from key agencies. Economic Growth National Income Investment
By Leith van Onselen Yesterday’s ABS labour force release for May revealed a weakening Australian youth labour market – i.e. those aged 15 to 24 years old. The trend headline unemployment rate fell to 12.17% in May from 12.28% in April: Whereas total employment growth for those aged 15-24 years of age is rising fast:
By Leith van Onselen As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for May, which registered a 12,000 increase in total employment and a decrease in the headline unemployment rate to 5.4% from 5.6%, driven by falling labour force participation. In trend terms, the unemployment rate fell marginally
Via Godfreys today: Is the June sales collapse the result of the new executive team or the market? It’s not helping JBH or HVN today. The former looks ominously like the bearish descending triangle chart of the big Australian banks:
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By Leith van Onselen The Australian reports that the Turnbull Government is considering a basic English test for all new permanent migrants amid concerns that by 2021, more than one million people in Australia could have little or no English skills: The move to consider mandating English language tests beyond citizenship applicants and apply a basic
By Leith van Onselen NAB’s latest Australian Wellbeing Report has revealed that Australian wellbeing fell to a new survey low 62.8 points in Q1 2018, with home ownership holding the key: Australians who live in and own their house or apartment report much higher levels of overall wellbeing than those who rent, according to new research released
Cross-posted from Martin North: The latest Digital Financial Analytics Household Financial Confidence Security Index for May 2018 is released today. The index tests households attitudes to their finances, based on our 52,000 rolling household survey. The index dropped to 90.2, down from 91.7 last month. Property-related sentiment is hitting hard, especially in New South Wales and
If you listened to the daily bleating of Australia’s parliamentary coal maniacs, you could be forgiven for concluding that the sector was on its last legs. Nothing could be further from the truth today as Australia is being flooded by coal cash at a rate that has not happened since the boom of 2008. The
Via Westpac comes consumer sentiment: The consumer mood has shown a clear improvement in 2018, the first half of the year marking the best run of sentiment reads since 2014. That said, the Index has not built on the gains seen at the start of the year and remains well below the levels typically associated
Via News: Bicycle-based food delivery company Foodora faces thousands of dollars in fines after it allegedly put riders and a driver on sham contracts. The ombudsman has filed an action in the Federal Court alleging the three workers in 2015 and 2016 were presented as independent contractors when they actually did the work of permanent
Via MB favourite Damien Boey: Loan approvals recover slightly in April Housing finance approvals data came in slightly ahead of expectations. Owner-occupier loans rose by 0.2% in April, while investor loans fell by 0.9%. Together with the housing finance release, the ABS now also publishes complete data for lending finance as well. Across all sectors,
By Gareth Aird, Senior Economist at CBA: Key Points: Employment growth has been much stronger for females than for males over the past year. Strong growth in the services sector, particularly health, is behind the big lift in female employment. The rise in female employment has been accompanied by a lift in participation. There are
Not that it was ever as good as advertised but the NAB survey boom is looking decidedly toppy: Of note, employment, profitability down sharply, stocks up sharply. The leading indicators of forward orders and capex are rolling: And services confidence is off hard ahead of conditions with ponzi-states in the south east hit hardest: Business
“Are you seriously saying people who are uncomfortable with their wage growth are whingers?”, asks @farrm51, as the Insiders panel discuss the impact of wage growth. #Insiders #auspol @barriecassidy @annabelcrabb pic.twitter.com/sNVRW0daGU — Insiders ABC (@InsidersABC) June 10, 2018 By Leith van Onselen We all know that The AFR’s Editor, Michael Stutchbury, has a pro-business bias. But
