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.
Amid frequent lockdowns and the rise of remote work, the number of empty shops across Australia’s CBDs has soared, according to new CBRE figures, published in The Australian: “A range of CBD retailers, mainly those in the clothing and soft goods industries, have closed their bricks and mortar stores and moved to a more online-centred
As noted earlier, Australia’s Consumer Price Index (CPI) came in at 0.8% in the March quarter – slightly above market expectations of a 0.7% rise: Annual CPI surged 3.8% in Q2. However, this rise was driven by the ‘base effect’, since CPI fell by 3.7% in the corresponding Q2 quarter of 2020 (as shown above).
Westpac with the note: We have revised our outlook for Australian dwelling prices. Back in February we boldly predicted a 20% increase over 2021 and 2022. A stronger than expected surge over the first half of 2021 is now expected to see prices up 18% in the first year alone. Lockdowns will see some loss
The ABS has released Q2 CPI data, which shows that inflation rose by 0.8% over the quarter and by 3.8% over the year – basically in line with analyst’s expectations of a 0.7% quarterly increase and a 3.8% rise year-on-year. The large annual increase in CPI was driven by the ‘base effect’, since CPI fell
NSW Health has recorded another 177 locally acquired COVID cases over the past 24 hours: NSW recorded 177 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night. pic.twitter.com/UPgvzflhFm — NSW Health (@NSWHealth) July 28, 2021 Of these locally acquired cases, 74 are linked to a known case or cluster –
CPI preview for later today. Westpac with the note: •Westpac’s forecast for the Q2 CPI is 0.9% which, with base effects from the Covid hit last year, will lift the annual rate to 4.0%yr from 1.1%. •The trimmed mean forecast is 0.5%qtr lifting the annual rate lift from 1.1%yr to 1.6%yr. The six-month annualised pace
CBA’s chief economist, Gareth Aird, with the note: Overview For most of H1 21 Australia looked on track to live up to its namesake as “the lucky county”. Economic outcomes were strong, COVID-19 was by and large not circulating in the community and the vaccine rollout was moving forward, albeit slowly. We appeared very much
NSW Health has recorded a record high 179 locally acquired COVID cases over the past 24 hours: NSW recorded 172 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night. Of these locally acquired cases, 85 are linked to a known case or cluster – 66 are household contacts and 19
ANZ weekly consumer confidence locked down: ANZ-Roy Morgan Aus Consumer Confidence: Last week confidence fell 3.5% to its lowest since Nov 2020, but it is still well above the early pandemic lows, suggesting the economic hit from these lockdowns will be less than in Q2 2020. #ausecon #ausretail @arindam_chky @DavidPlank12 pic.twitter.com/kE8c7rMCBL — ANZ_Research (@ANZ_Research) July
The Victorian Department of Health has reported another 10 locally acquired cases over the past 24 hours. However, like the prior three days, all cases were linked to existing outbreaks and were in quarantine throughout their infectious period. Thus, they pose minimal risk to the community. The next chart shows that new locally-acquired cases in
The Grattan Institute has released a new report entitled “Gridlock: Removing barriers to policy reform”, which argues that Australia’s prosperity is at risk from a decade-plus of decay across our political institutions. Below is the Overview, combined with some key graphics: Australia’s governance has deteriorated over recent decades. The formal institutions and the informal norms
The NSW government will formally request the federal government reinstate the JobKeeper wage subsidy scheme, amid expectations that the COVID-19 lockdown of Greater Sydney will be extended for at least another month. The state government is also believed to have sought financial modelling on a number of scenarios, including extending the lockdown until 17 September:
Nordea with the note. I agree with all of it except the Fed hikes. For me, it is still more likely that it is forced backwards not forwards: Covid or rather Delta is back in the limelight as cases surge in e.g., UK and Spain, but the most interesting thing is now to follow the
EY Australia has a new report out on the prospects for Aussie cola over the next three decades and the news is good: Two-thirds of jobs will be lost. Under an orderly scenario, fossil fuel demand falls 42% globally by 2040. Under the disorderly scenario, which delays action until after 2030, fossil fuel demand collapses
NSW Health has just reported another 145 locally acquired COVID-19 cases over the past 24 hours: NSW recorded 145 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night. pic.twitter.com/TUUIDvd6SP — NSW Health (@NSWHealth) July 26, 2021 Of these locally acquired cases, 66 are linked to a known case or cluster,
Victoria’s Department of Health has recorded another 11 locally acquired COVID cases over the past 24 hours; however all were already in isolation throughout their infection period: Reported yesterday: 11 new local cases and 1 new case acquired overseas (currently in HQ). – 13,953 vaccine doses were administered – 25,404 test results were received More
NSW’s COVID outbreak went from bad to worse over the weekend with another 163 new local infections recorded on Saturday followed by 141 on Sunday – both the highest number of daily cases this outbreak. Dozens of these cases were also infectious in the community. Sadly, a women in her 30s with no pre-existing illness
Albert Edwards of Societe General with the note Many seem at a loss to explain the recent bond market rally in the face of higher-than-expected inflation data. Readers of these pages will not have been surprised, as the collapse in the credit impulse we have been highlighting was calling for just such a rally. More
Callam Pickering, economist at global jobs site Indeed, has released new data showing that, as of last Friday, Sydney’s and Melbourne’s lockdowns had minimal impact on Job Postings; although Pickering expects the situation to change as lockdowns drag on: As of last Friday, there has been minimal impact on job postings from the lockdowns in
NSW Health has reported another 136 local COVID cases over the past 24 hours: NSW recorded 136 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night. pic.twitter.com/WsMXKvQOY0 — NSW Health (@NSWHealth) July 23, 2021 Of these locally acquired cases, 77 are linked to a known case or cluster – 65
Farewell stellar jobs recovery. Via the ABS: In the fortnight up to the week ending 3 July 2021: Payroll jobs decreased by 1.0%, compared to an increase of 0.4% in the previous fortnight All states fell: OMG it’s a blue recession! Kids always do worst, earliest: Payrolls are not seasonally adjusted so that’s why the ABS is cautious. But,
Victoria’s Department of Health has recorded another 14 new COVID cases over the past 24 hours, all of which are linked to existing outbreaks. 10 of the 14 new cases were in quarantine throughout their entire infectious period with 1 of the other 4 cases still to be interviewed. The next chart shows the flow
Into the Morrison Idiot recession we go. Remember that vaccines “are not a race” and we do not need to centralise hotel quarantine in the bush. Via Markit comes the crashing Aussie flash PMI: The growth streak for the Australian private sector ended in July according to Flash PMI® data which showed business activity in
NSW Health has reported another 124 new local COVID infections over the past 24 hours: NSW recorded 124 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night. pic.twitter.com/4y3TvoDUpF — NSW Health (@NSWHealth) July 22, 2021 Of these locally acquired cases, 67 are linked to a known case or cluster –
By Gareth Aird, head of Australian economics at CBA The level of uncertainty over economic outcomes in the near term has further increased over the past week because of additional lockdowns around the country, lockdown extensions and a tightening of restrictions in Greater Sydney. The absence of any downward trend in the number of daily
Victoria recorded another 26 locally acquired COVID cases over the past 24 hours: Reported yesterday: 26 new local cases and 2 new cases acquired overseas (currently in HQ). – 14,230 vaccine doses were administered – 43,674 test results were received More later: https://t.co/lIUrl1hf3W#COVID19Vic #COVID19VicData pic.twitter.com/7j1ACJv4i7 — VicGovDH (@VicGovDH) July 21, 2021 The good news is
Recruiters Robert Half Australia are reporting a tighter labour market and higher wage offers thanks to the collapse in immigration: Covid is rewriting the job descriptions – and the salaries – of many employees in finance and accounting, technology, business support and marketing areas, according to a report from recruiters Robert Half Australia… The firm’s
Professor Catherine Bennett of Deakin University has suggested that state governments may be able to control localised COVID-19 outbreaks without imposing lockdowns when at least 30% of Australians have been fully vaccinated. However, Raina MacIntyre from the Sydney-based Kirby Institute says its research shows that this level of full vaccination would not be sufficient. She
In the late 1990s, Australia privatised the system that helps the unemployed find work. The idea was that by paying employment service providers for each person they placed into a job, the process would become more efficient. Instead, a parasitic industry developed with around 40 privately run employment agencies earning millions in fees from the
The ABS has released its preliminary retail sales for June, which fell 1.8% over the month to be up 2.9% year-on-year: According to the ABS: The fall of 1.8% in June 2021 follows a rise of 0.4% in May 2021. By state, Victoria (-3.5%) and New South Wales (-2.0%) led the falls, with both under
