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.


WA opts out of population ponzi

By Leith van Onselen New WA Premier, Mark McGowan, has signaled that unlike his federal Labor counterpart, Bill Shorten, he actually cares about his workers. With WA unemployment and underemployment sky high: McGowan has written to Prime Minister Malcolm Turnbull to remove Perth from the Regional Sponsorship Migration Scheme, thus effectively preventing a pathway for


Shorten plays race card on immigration

By Leith van Onselen On Wednesday, federal opposition leader, Bill Shorten, went on a tirade labeling those arguing for a sensible and sustainable immigration intake “political extremists” and effectively playing the race card to shut-down debate. From The Guardian: Shorten said that “political extremists” are telling Australians “that cutting migration will clear-up traffic and make


Creighton: Mass immigration is squeezing our cities

By Leith van Onselen In the wake of yesterday’s stunning figures showing the blow-off of population growth into our two major states: The Australian’s Adam Creighton has penned a good piece today on the population “squeeze” afflicting Melbourne and Sydney: “Such [population] growth means we need five new hospitals, 31 new schools and 35 new


Australian housing bubble’s great pro-cyclical blowoff

I’ve been tracking the Great Australian Housing Bubble for a decade and more but I have never before seen what is transpiring today. We are in a true volcanic blowoff now as pro-cyclical fiscal, monetary and population growth explode prices higher. The epicentre is Sydney and Melbourne: Where fiscal incentives and a variety of state sponsored


Welcome to the land of government jobs

By Leith van Onselen The Australian Bureau of Statistics (ABS) yesterday released its quarterly labour force report, which breaks-down employment at the industry level to February 2017. Below are some key charts, which present the changes in employment aggregates on a trend basis. First, the quarterly change in employment by industry: As you can see,


Spare capacity to weigh-down wages, inflation

By Gareth Aird, senior economist at CBA: Key Points: Spare capacity in the Australian economy continues to weigh on inflation and wages growth. Labour market slack varies across the states reflecting divergences in state final demand. Talk of rate rises is premature because there is a significant amount of spare capacity in the economy. Overview:


Australia’s immigration ponzi reignites

By Leith van Onselen The ABS released its Australian demographic statistics for the September quarter of 2016, which revealed that Australia’s overall population growth rate has accelerated led by unprecedented growth in Victoria, which has once again obliterated records. According to the ABS, Australia’s population rose by 1.46% in the year to September 2016 to


Salt of the Ponzi collapses into confusion

By Leith van Onselen KPMG’s Bernard Salt – the self-proclaimed “unabashed supporter of a bigger Australia” – has penned another piece in The Australian spruiking mass immigration and claiming that the march toward ‘mega-cities’ will drive the nation’s productivity: There will be more growth in ­Australia’s biggest cities over the next 30 years than in


NSW land registry sale another dumb monopoly privatisation

By Leith van Onselen In late 2014, the Productivity Commission’s (PC) released a report on the provision of public infrastructure, which explicitly warned that the Coalition’s financial incentives to the states to sell-off public assets (“asset recycling”) “could act to encourage privatisation in circumstances that are not fully justified and encourage the selection of new


Westpac’s leading index retraces

From Westpac’s Bill Evans: 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, fell from 1.34% in January to 1.02% in February. The Leading Index continues to point to above trend growth momentum, albeit


Soc Gen: Australian mining bust transition “perfect”

Via Business Insider today: The French global investment bank says it expects Australian economic growth “to run at an above-potential rate for the next couple of years”, with a strong pipeline of residential housing activity a key driver of the growth. Klaus Baader, Asia-Pacific chief economist for Soc Gen and an experienced Australia forecaster, has


RBA concerned about household debt, housing risks

By Gareth Aird, senior economist at the CBA: Key Points The RBA Board Minutes confirm that policy is on hold over the near term. Strong dwelling price growth and concerns around the further build-up of debt in the household sector mean that rate cuts are off the table. Market pricing implies very little chance of


Forget value capture. Go with a broad-based land tax

Cross-posted from The Conversation: Is “value capture” a wonderful untapped opportunity to fulfil all our infrastructure dreams? Or is it just a new way to sting the taxpayer? Our new report casts a cold, hard gaze over value capture, and finds that it’s a good tax in theory, but will prove very hard to put


Population ponzi threatens Sydney’s food bowl

By Leith van Onselen The ABC has run a report on how endless population growth and urban sprawl is threatening Sydney’s food bowl: What were once quiet rural communities, Camden and Oakdale are now fairly urbanised and further development is likely as town centres expand. Sydney’s west is expected to bear the brunt of more


Nation’s farms save GDP

From UBS: Farm sector alone added 0.5%pts y/y to real GDP in Q4-16, the most since 2008 A key driver of the upside surprise of Q4 real GDP rebounding 1.1% q/q was a surge of the farm sector. After declining for decades to a ~record low 2% share of GDP, Q4 farm production rebounded 8%


Mark Latham demolishes Australia’s population ponzi

By Leith van Onselen Former Labor leader, Mark Latham, gave a stirring speech yesterday at the Sustainable Australia party’s community forum, “Housing Affordability: An Honest Debate”, which was held in Sydney. In the speech, Latham argued logically against the mass immigration ‘Big Australia’ policies endorsed by all of the major parties, which are making ordinary


Prepare for the Amazon deflation

Remember this, from News: RETAIL prices have stayed low for a long time. So suspiciously low that the Reserve Bank of Australia (RBA) started to wonder if something had gone wrong. It did a big investigation which it published last week. The reason they found? Mostly Aldi. The RBA says we’ve had “a large downward shift


Was John Howard Australia’s worst Prime Minister?

By Leith van Onselen Fairfax’s Crispin Hull penned a thought-provoking piece over the weekend claiming that Australia is “still plagued by destructive policies of John Howard, our worst prime minister”: Howard led us into Iraq just to please the Americans and that the decision was based on a falsity. That decision cost a lot of