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.


Ghost Melbourne permanent

Dictator Dan says Melbourne is now a permanent ghost city, at the AFR: In a sign that Melbourne’s CBD may never fully recover, Mr Andrews predicted workers would continue to work remotely and said many businesses had reported high productivity levels since the shift to remote work caused by the coronavirus pandemic. “We will see


Biden appoints China hawk to run Asia foreign policy

Via Micheal Green at Foreign Policy: First, Campbell is widely recognized as an early and important architect of a strategy to build up alliances and partnerships to keep Beijing in check as Chinese power grew. In the mid-1990s, he was appointed as the senior U.S. Defense Department official on Asia, arriving with relatively little regional


Aussie kids enjoy farm slavery

Via the ABC: As soon as it became clear COVID-19 was going to wreak havoc, most backpackers hastily left Australia and made their way back home. Fearing the nation’s fresh produce would be left to rot, the Federal Government and agriculture bodies lobbied young Australians to take up farming jobs instead. Some farmers flaunted attractive


Raise not cut JobSeeker for recovery

Via Ben Phillips, Matthew Gray and Nicholas Biddle: Australian National University calculations suggest JobKeeper and the boosted JobSeeker payment have saved about 2.2 million people from poverty. It’s a remarkable outcome without precedent in Australia. JobKeeper was set at A$1,500 per fortnight and the Coronavirus Supplement was set high enough to double JobSeeker and associated payments, increasing them to about


ABS job vacancies more numberwang

Via the ABS: Key statistics The seasonally adjusted estimates for the November 2020 quarter are as follows : Total job vacancies were 254,400, an increase of 23.4% from August 2020. Private sector vacancies were 228,800, an increase of 24.2% from August 2020. Public sector vacancies were 25,600, an increase of 16.9% from August 2020. Nov 2020 (‘000) Aug 2020


Pathetic ABC prays for wages growth

The ABC gets worse by the day. Now it’s producing pie-in-the-sky economic propaganda: There’s economic growth, and there’s economic growth. A big boost in government spending, or a mining boom, can lead to greater economic output or growth. The key though, as always, is whether or not it’s sustainable. If it is, the economy begins


Doctors demand withdrawal of Morrison’s dodgy vaccine

Via SMH: The Australian and New Zealand Society for Immunology says the federal government should immediately pause the planned rollout of the AstraZeneca vaccine because it may not be effective enough to generate herd immunity. Phase three clinical trials of the vaccine, which is the centrepiece of Australia’s vaccination strategy, show it is only 62


ANZ consumer confidence recovery stalls

Arguably a decent few weeks given virus and political tensions: ANZ Roy Morgan Australian Consumer Confidence starts the year on a steady note rather than the usual holiday gain. This suggests that lockdowns and border closures have impacted #sentiment to some extent. #ausecon @DavidPlank12 @MBansi @roymorganonline — ANZ_Research (@ANZ_Research) January 11, 2021


Goldman’s 10 reasons for a new commodity super cycle

Via Goldman: 1) OPEC and Georgia help neutralize near-term risks. The events of last week substantially reduced the downside risks to our bullish commodity narrative — a fact reflected in the rise in oil and copper alongside the sharp decline in gold. First, Saudi Arabia agreed to a unilateral production cut that neutralized current lockdown


Aussie retail goes boom

Via the ABS: Key statistics The November 2020 seasonally adjusted estimate: Rose 7.1% month-on-month. This updates the rise of 7.0% published in the Preliminary Retail Trade release. Australian turnover rose 13.3% compared to November 2019.   Victorian reopening and the new trend in consumption away from services and towards goods. It’s a big year ahead


Virgin Premier abandons international student return

It’s all good news today, at the SMH: The NSW government has shelved plans to start returning 1000 international students to Sydney each week in a blow to some of the city’s major universities. Premier Gladys Berejiklian told The Sun-Herald in November she wanted to use a third of the state’s hotel quarantine slots to bring in international


What will matter to markets in 2021

Global Reflation The base case for the global economy is a growth and profits boom in 2021. This is a combination of four factors: ongoing huge stimulus catch-up growth ongoing inventory rebuild falling US dollar These four factors will dominate growth and profits. Monetary authorities will do nothing to tighten in 2021, outside of China.


Australia catches COVID derangement syndrome

Brisbane has recorded one local COVID-19 case, the state government has taken the sensible precautionary measure to lockdown Greater Brisbane for 3 days to assess the situation, and yet several Australian states and territories have already shut their borders to Queensland or imposed draconian isolation requirements. Here’s South Australia: Anyone coming into the state from


What happens to property when stimulus ends?

Federal Government stimulus – most notably the HomeBuilder and First Home Loan Deposit Scheme – has done a terrific job juicing new home construction. Detached house approvals have hit a 20-year high: Whereas construction finance commitments have experienced an unprecedented rise: This has inevitably posed the question of “what happens to construction when the stimulus unwinds”?


ACCI demands Australia open border to migrants

While the nation grapples with multiple COVID outbreaks imported via returning Australians, the biggest business collective – the Australian Chamber of Commerce and Industry (ACCI) – has demanded the federal government open Australia’s international border to ‘skilled’ migrants to alleviate so-called skills shortages: Melbourne-based Raghubir Singh is an experienced motor mechanic who had planned to


Aussie telcos declare war on Netflix

Two and a half years ago, NBN Co chief Bill Morrow blamed online gaming for creating massive congestion on the National Broadband Network (NBN) network. Accordingly, NBN Co was “evaluating” throttling downloads for users during peak periods in order to relieve  fixed wireless congestion. Then early last year, the blame for NBN congestion was shifted


QLD records local COVID case amid another quarantine breach

Australia recorded only one new locally acquired COVID-19 infection overnight – a casual cleaner working in a Queensland quarantine hotel: There are now 225 active locally acquired cases recorded across Australia: NSW still leads the way with 196 active local cases: However, its rate of infection has fallen below the second wave, where NSW suppressed


New car sales bounce back

The Federal Chamber of Automotive Industies (FCAI) has released new car sales for December, which revealed that sales continued to rebound: According to FCAI: December 2020 recorded 95,652 sales, a 13.5 per cent increase over the same period in December 2019 when 84,239 were sold. This result follows a similar upturn in November 2020, when


RBA Charts the Aussie economy

It’s that time of month, even though the boffins and gearlever holders are on holidays for January they still managed to put out a glorious make benefit for MacroBusiness readers Chart Pack. First, its the measure that all economists love and politicians are slavishly devoted to – GDP: COVID-19 really put the guts into GDP


University students shun Victoria, adding to rental pain

Melbourne’s harsh 16 week lockdown has driven interstate applications for places at Victorian universities in 2021 down 13% compared to 2020. By contrast, interstate applications for places at NSW universities are up 14.9% compared with 2020. Demographics Group MD Bernard Salt notes that applications would have been made at the height of Victoria’s lockdowns in


AMA: Australia’s quarantine system ill-equipped for COVID fight

Australian Medical Association (AMA) president Omar Khorshid has warned that Australia’s hotel quarantine system is ill-equipped to ward off new super strains of COVID-19 tearing across the UK and elsewhere: Australian Medical Association president Omar Khorshid told The Australian he was concerned that the UK virus or another super strain could enter Australia and escape


Vaccine rollout in March as UK super strain explodes

Britain toughened its coronavirus restrictions yesterday, with England and Scotland joining the rest of the country in Stage 4 lockdown. Under these restrictions, schools have been shut and residents are banned from leaving home except for essential shopping, medical reasons or exercise. The lockdown comes as the UK grapples with a new highly infectious super