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.
Stephen Koukoulas (“The Kouk”) is the latest in a growing list of economists to acknowledge that the closure of Australia’s international border to migrants will soon generate enough labour market tightness to drive decent wage growth: It’s good news for the economy – Australia is entering a period of accelerating wages growth… A hectic schedule
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Roy Morgan Research has released its labour force survey for April, which reveals that Australian employment hit a record high 13 million in April, with the unemployment rate also falling another 2.4% to 9.0%: Almost everything is headed in the right direction as the economy powers through the end of JobKeeper: 13.29 million Australians were
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AIG on the services PMI: A decent boomlet now but still not tearing the roof off and soon to peak. Full report.
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Another hotel quarantine breach has prompted the NSW Government to tighten COVID restrictions for three-days from 5pm tonight. The source of the infection is reportedly a returned traveller from the US who stayed at the Park Royal at Darling Harbour. This man somehow passed the virus to a local Sydney man and his wife. However,
Deloitte Access Economics has forecast that public sector investment in infrastructure will increase by 20% 2020-21 and 13% 2021-22. By comparison, private sector investment in infrastructure is tipped to fall by 2.6% in 2020-21 followed by growth of 12% in 2021-22. Deloitte says there is currently more than $180 billion worth of public infrastructure projects
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After being ignored for nearly a decade, it is gratifying to see Australia’s economics fraternity belatedly endorse MB’s argument that lower levels of immigration are necessary to drive labour underutilisation down and wages up. The shift began in March with the release of Ross Garnaut’s new book, Reset, which argues that the massive increase in
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As we know, Australia’s household saving rate boomed last calendar year on the back of lockdowns (which reduced expenditure) and massive stimulus (which increased disposable income). An enormous $187 billion of household income was saved in calendar year 2020 – more than double the previous peak of $80.5 billion saved by households in 2015: Turns
Below is a submission to the inquiry into Australia’s skilled migration program, written by Sustainable Population Australia with my assistance. The submission is a direct rebuke of the Morrison Government’s planned rebooting of Australia’s pre-COVID mass immigration program via giving Australian businesses easier access to migrant workers to overcome purported skills shortages. Introduction Sustainable Population
Last week, the Australian Bureau of Statistics (ABS) released its export/import price index, which signaled an enormous 11.0% increase in Australia’s terms-of-trade over the March quarter 2021 and a 15.8% increase through the year: This surge in the export/import price index was driven by a 18.2% quarterly rise in metalliferous ores and metal scrap prices,
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There is no shame, nor memory, in the Australian press: Neil Perry can’t find workers for his new restaurant. Former union man and KPMG legend, Paul Howes, says all contention that immigration suppresses wages is “rubbish”. Other sectors are whining about needing more workers plus scaremongering about inflation. Many of them are operating in low
Via AIG: It’ll slow before long as catch-up growth passes. Full report.
