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.

1

The great “$35b” international student export myth

One of the biggest myths surrounding Australia’s international student industry is the claim that it is Australia’s fourth biggest export and worth more than $35 billion in 2018, as illustrated in the next table from the Department of Foreign Affairs and Trade (DFAT): In a recent speech, Australia’s trade minister, David Coleman, spruiked the immense

15

Low-grade Indian international students flood Australian universities

The Department of Home Affairs’ June quarter student visa statistics, released this week, reported a massive 34% increase in visas granted to Indian international students in the 2018-19 financial year: Moreover, the number of Indian student visa holders in Australia grew by 35% in 2018-19 to a record high 95,000, with Indian students fast catching-up

15

UBS: House prices entering pointless “mini-boom”

Via the excellent George Tharenou at UBS: …we expect RBA rate cuts & APRA credit easing to trigger a ‘mini-boom’ for home prices (5-10% y/y) & home loans (15-20% y/y). Nonetheless, ‘this cycle will be different’…we expect much of the typical multiplier from strong house prices, to the ‘real’ economy, to be unusually muted in

24

Coalition’s visa privatisation will torpedo Australia’s borders

Following his stellar expose last month, investigative journalist, Michael West, has done another excellent job exposing the cabal of vested interests behind the Morrison Government’s plans to privatise Australia’s visa system: Flemington market’s fruit and vegetable mogul Santo Peter Tripodina and his 38-year old son, property developer Adrian Tripodina, have emerged as mystery power-brokers behind

4

Chinese international student visa applications plunge

The June quarter international student enrolment data, released by the Department of Education, revealed a slowdown in enrolments from China: Chinese international student enrolments increased by only 8,400 (4.3%) in 2018-19, a sharp slowdown from the 25,700 (15.1%) increase recorded in 2017-18. As shown in the next chart, the slowdown in Chinese international student enrolments

6

Chinese tourists return to Australia

The Australian Bureau of Statistics yesterday released its overseas short-term arrivals and departures figures for July. The number of short-term visitor arrivals rose by 19.7% in July in original terms, whereas short-term resident departures fell by 2.1% over the month. The ratio of annual arrivals to departures also rebounded to 81.2%: Net short-term arrivals remain

24

Exploitative visa system undercuts Australian workers

Federal Minister for Employment Michaelia Cash has called on businesses to invest more in workforce training. Noting that it costs companies on average $28,000 to replace an employee, Cash claims that one of the main reasons why people leave their job is that they are unsatisfied with their skills development. Cash says that spending more

21

International student enrolments hit by “substantial downturn”

Higher education providers are panicking over the purported “substantial downturn” in international student enrolments across Western Australian colleges and universities: Perth-based colleges and universities are reporting a substantial downturn in students opting to come to the state, with TAFE enrolments down nearly 60 per cent on 2015 and WA’s intake of foreign fee-paying students dropping

26

High density living driving fall in new car sales?

New car sales have now declined for 17 months, longer than a 15-month decline that occurred during the global financial crisis (GFC): Now, a new report from KordaMentha indicates that car ownership is viewed as ‘more optional’ than in the past. Cars are not well suited to high-density living in Australia’s congested cities while young

6

Drought to get worse on Antarctic heat wave

Via The Conversation: Record warm temperatures above Antarctica over the coming weeks are likely to bring above-average spring temperatures and below-average rainfall across large parts of New South Wales and southern Queensland. The warming began in the last week of August, when temperatures in the stratosphere high above the South Pole began rapidly heating in

16

Net migrant arrivals near 300,000

The Australian Bureau of Statistics (ABS) has released visitor arrivals and departures statistics for the month of July, which reveals that the number of permanent and long-term arrivals into Australia remains turbo-charged. In the year to July 2019, there were a record 844,680 permanent and long-term arrivals into Australia, up 3% from July 2018, and

24

Coalition senator calls for immigration to be slashed

Queensland LNP senator Gerard Rennick has used his maiden speech to call for Australia’s immigration levels to be slashed, likening Australia’s immigration program to ‘over stocking’ paddocks: While economic growth is important, it should not come at a cost to our quality of life. It is time immigration levels were reduced so communities can deal

8

Another Australian investment domino falls over

Via The Guardian: A new snapshot of Australia’s clean energy sector warns new investment committed in the first half of 2019 has fallen back to 2016 levels, when Tony Abbott invited an investment strike when he tried to abolish the renewable energy target. While the Morrison government has been trumpeting record recent investment in renewable energy

1

Consumer sentiment fades away

No ScoMo miracle here. Via Westpac: The consumer mood has lapsed back into slight negative territory again with continued pressure on family finances and concerns about the near term outlook weighing on sentiment. The September survey included additional questions on the tax offset payments the Federal government began making with tax refunds from July 1.

59

Overrun Monash students block Chinese takeover

Via The Age: International students have been banned from contesting student elections at one of Victoria’s most prestigious universities, in a move to stop a group of Chinese students seizing control of the student union. …Leaders of Monash University’s Caulfield campus student body last week passed a new rule that students wishing to run at

32

Professor: International students “gone wild” at Aussie universities

Last month, Salvatore Babones – adjunct scholar at the Centre for Independent Studies (CIS) and an associate professor at the University of Sydney – released arguably the most definitive assessment of Australia’s international student industry ever conducted. In this study, Babones argued strongly that Australia’s universities have far too high a concentration of international students,

37

Experts: Australia’s visa system “lazy” and “low-skilled”

The Australian’s Adam Creighton penned a thought-provoking article yesterday, whereby he described Australia’s “wide-scale immigration from poorer countries” both “low-skilled” and “lazy” policy: Why worry about how to “engage” with Asia when we were becoming an Asian country?… By 2023, the Chinese-born population of Australia — which grew by half to 650,000 across the five

52

Australian leading indexes crash into recession

Via Damien Boey at Credit Suisse: The NAB business confidence survey for August was quite soft. Business confidence fell to +1 from +4, while firms’ assessment of business conditions also fell to +1 from +3. Compositionally, firms reported softer growth in trading activity, weakness in new orders, and contraction in profits. Interestingly, hiring intentions rose

20

Australians face worsening water restrictions, rising prices

With Australia’s population ballooning on the back of mass immigration, and projected to add around 360,000 people a year until 2066: Australians are potentially facing the deepest water restrictions in the nation’s history: Parts of Australia could face the toughest water restrictions they have ever seen as the nation’s crippling drought shows no sign of

2

Consumer confidence takes GDP hit

Via ANZ: Households’ perception of current financial conditions fell 4.8% last week, more than reversing a cumulative 1.7% gain over the previous two weeks. Meanwhile, sentiment towards future financial conditions rose 2.1%, its third straight weekly increase. Encouragingly, households’ assessment of current economic conditions bounced 2.1%, entirely reversing the prior week’s fall. Consumers were less optimistic

2

ACCI smacked by dwelling construction bust

Via Westpac: • The Australian Chamber–Westpac Survey of Industrial trends, Australia’s longest running business survey dating from 1966, provides a timely update on manufacturing and insights into economy-wide trends. • The Westpac–AusChamber Actual Composite index fell sharply to 52.9 in September from 61.5 in June. The further loss in momentum continues the weakening trend seen

1

Mining to generate jobless booms

Australia’s mining industry (as opposed to mining-related construction) has never been a large Australian employer. According to the Australian Bureau of Statistics (ABS), the mining industry directly employed only 1.9% of Australians as at May 2019, despite roughly doubling its share since the early-2000s: Mining’s employment share could fall in the future as the industry

6

International students dodge English language requirements

Underlying the deep problems surrounding Australia’s international student industry is the degradation of English-language entry and teaching standards. In a nutshell, Australia’s universities have significantly lowered English-language requirements to facilitate the admission of huge volumes of international students from Non-English Speaking (NES) nations, in particular China, India and Nepal: As illustrated above, the number of