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.


The Kouk: No immigration means wage growth

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


2021-22 Australian Budget Preview

By Gareth Aird, Head of Australian Economics at CBA Key Points: The 2021/22 Australian Budget is scheduled for release at 7.30pm (AEST) 11 May. The Budget bottom line will be greatly improved because of the much better performing economy and significantly higher commodity prices. Notwithstanding, more stimulus is expected to be announced, including an extension


Trans-Tasman travel bubble suspended again amid NSW outbreak

The Trans-Tasman travel bubble has been suspended after a few cases of COVID community transmission appeared across Sydney. While only two community cases have been identified – a husband and wife – NSW authorities have yet to identify the “missing link” that transmitted the virus from the returning traveller into the community: “What we’re concerned


Why Victoria should tax electric cars

By Jesse Hermans, cross-posted from Prosper Australia Until recently, no government had a “cogent plan” to deal with impending combustion of Commonwealth fuel excise revenue. But now Victorian Treasurer Tim Pallas has risen to the challenge both to future proof Victoria’s road charging regime, and make Zero and Low Emissions Vehicles (ZLEVs) a more affordable choice for


Bosses demand separate quarantine facilities for foreign workers

Bosses across the Northern Territory have used the cover of ‘skills shortages’ to lobby the government to build a second quarantine facility at the former detention centre Bladin Village – 50 kilometres from Darwin – for the exclusive purpose of flying in foreign workers and students: The NT Farmers Association and Hospitality NT want to


Deloitte tips massive infrastructure boom

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


Aussies bet it all on the house

Last week,’s David Hargreaves posted the below chart showing how Kiwis have pulled back borrowing for everything except property: For the record the figures show us that personal/consumer borrowing is continuing to atrophy… Agricultural lending is continuing to drift lower… Business lending actually increased a little in the month of April (emphasis on ‘little’)


Finally economists admit lower immigration is good for workers

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


Consumer confidence rebounds to average

The ANZ-Roy Morgan consumer confidence index has been released with confidence lifting 0.3% in the weekend of 1-2 May following the end of Perth’s lockdown: The consumer confidence index (112.7) is now running around the historical average since 1990 (112.6); although the four-week average (113.3) is higher. According to ANZ’s Head of Australian Economics, David


Angry immigration elephant in the room tramples Greg Jericho

The Guardian’s economics poster boy, Greg Jericho, has written another article chock full of shiny charts attacking the federal government’s inability to drive unemployment down and wage growth up. Jericho’s key points are as follows: “We’ve had years of absurd budget projections about wages growth that never came true” because the Treasury’s assumed natural rate


Morrison sits on his hands as quarantine failures pile up

The Australian has released a stunning series of reports (here and here) on Victoria’s latest hotel quarantine failure, which seeded the state’s third hard lockdown in February and resulted in international arrivals being banned for two months. The allegations are based on a secret Victorian Government report leaked to the paper, entitled Hotel Quarantine Outbreak Retrospective


HomeBuilder boom begins to fade

Yesterday’s mortgage data from the Australian Bureau of Statistics (ABS) suggests that HomeBuilder and associated stimulus is starting to fade. According to the Housing Industry Association (HIA), first home buyer (FHB) activity in the construction market hit “its highest level since the stimulus associated with the GFC”. These FHBs “were significant beneficiaries of the [HomeBuilder]


Construction PMI tops out

And so it begins. Aussie catch-up growth has been very powerful. But it will end and soon in the second derivative. Indeed, maybe it just did. The AIG construction PMI as new orders growth slowed materially: Remember that PMIs are directional not positional so some of the components that are in structural oversupply are still


Australia’s trade surplus dipped in March

The Australian Bureau of Statistics (ABS) has released international trade data for March, which revealed that Australia’s trade surplus retraced by $2.0 billion to $5.6 billion amid falling exports (-$681 million) and rising imports (+$1,340 million): Nevertheless, Australia’s trade balance has been stuck firmly in surplus since 2019: The fall in exports was driven by


Workers bribed to return to CBD ghost town

New data from Roy Morgan Research tracking people movements across Australia’s capital cities shows that activity across Melbourne’s and Sydney’s CBDs was less than half their pre-COVID level at the end of April. Across the smaller capitals, people movements remained less than two-thirds of their ‘normal’ level: Commenting on the findings, Roy Morgan CEO Michele


Global economy set for a consumer-led boom

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


Submission to the inquiry into Australia’s skilled migration program

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


Commodity price index goes boom!

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,


AFR launches ribald immigration class war

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