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.

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Hong Kong international students terrified to return home

Over the past month, Hong Kong international students studying at Australia’s universities have endured growing threats and intimidation from both Chinese international students and the Chinese Government. The issue came to a head last month at the University of Queensland, when peaceful Hong Kong students protesting in favour of independence were physically attacked by a

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Youth labour market continues to worsen

Yesterday’s ABS labour force release for July revealed a deteriorating Australian youth labour market – i.e. those aged 15 to 24 years old – with both full-time and total jobs growth falling and unemployment and underemployment rising. The trend headline unemployment rate rose to 12.0%: Total employment growth for those aged 15-24 years has dived:

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It’s official: Coalition’s migrant visa cuts are a lie

Earlier this week, immigration minister David Coleman gave a speech to the Sydney Institute where spruiked the Coalition’s 30,000 cut to Australia’s non-humanitarian permanent migrant visa intake in order to reduce congestion in the major cities: …in recent years, we have reduced our annual permanent migration intake. Population pressure in Sydney and Melbourne in particular

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Chinese international students flee Australia

It is fair to say that China has been the primary driver of Australia’s international student boom. Over the past six years, Chinese international student enrolments have surged by 94,000, with China accounting for 29% of total international student enrolments at Australian educational institutions: Chinese students also account for around 40% of Australia’s $35 billion

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Are Aussie businesses “hoarding labour”?

Via Damien Boey at Credit Suisse: Employment continues to defy the gravity of almost every leading indicator. Growth continues to track well ahead of our proprietary labour market indicator, which is based on ANZ job advertisements, NAB hiring intentions and our domestic demand tracker. Perhaps RBA Assistant Governor Debelle had it right today, when he

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ABS Employment in detail: More bad news for wages

As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for July, which registered a 24,600 increase in total employment but a flat headline unemployment rate (still 5.2%) due to a 0.09% increase in labour force participation. However, the underemployment rate rose by 0.2% in seasonally adjusted terms. In trend

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CEO pay explodes as workers fed gruel

Last month, economic advisor to The Executive Connection, Warren Hogan, claimed that “low wage growth story has become a macroeconomic phenomena around the world” and told workers not to expect any material pay rises. Today, it has been revealed that top executives at large US companies are paid 278 times more than their workers, with

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Australian jobs power on

Via the ABS just now: TREND ESTIMATES Employment increased 24,600 to 12,915,200 persons. Full-time employment increased 15,100 to 8,849,500 persons and part-time employment increased 9,600 to 4,065,700 persons. Unemployment increased 6,600 to 715,600 persons. Unemployment rate increased by less than 0.1 pts to 5.3%. Participation rate increased 0.1 pts to 66.1%. Monthly hours worked in

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Australian wages now a ward of the state

In Friday’s testimony to the House of Representatives Standing Committee on Economics, RBA Governor Phil Lowe backed calls to lift public servant wages in order raise overall wage growth: Dr Lowe: Most public sectors have wage caps to 2½—some have 1½… and I can understand why governments are doing that… On the other hand, the

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Australia’s bogus “$35b” international student market

On Tuesday night, immigration minister, David Coleman, gave a speech to the Sydney Institute where he talked up the immense benefits arising from Australia’s international student trade, which has supposedly delivered $35 billion of export revenue: We will also maintain a sharp focus on our international student programme, the largest driver of temporary migration to

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Wage theft crisis rocks Canberra

A new survey by UnionsACT claims that nearly two-thirds of young Canberrans were underpaid over the past year: There is growing evidence that employers are purposely flouting Fair Work laws and WHS laws on a vast scale, and young workers are under-reporting incidences of injuries and wage-theft to authorities. In a context where the Federal

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Nearly half of Aussies living paycheck to paycheck

The latest ME Bank six monthly survey of financial comfort, released this week, revealed that cost of living pressures remain by far the biggest concern amongst Australian households, with 40% claiming they are living paycheck to paycheck: 31% of households that indicated that their financial situation had worsened over the past year, there was a

3

Consumer sentiment levels out

Via Westpac: Superficially this result comes as somewhat of a surprise given that the survey was conducted against a turbulent backdrop with global financial markets roiled by escalating trade tensions between the US and China, the ASX down 3.4% and the AUD off 3c US since the July survey. However, the result does come in

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Australian households face 400% increase in water bills

Infrastructure Australia’s audit of the nation’s requirements highlights water as a key pressure point arising from the 24% projected increase in Australia’s population to 31.4 million people by 2031: Population growth is ramping up pressure on limited water supplies While climate change is tightening water supplies in many parts of the country, our population has

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Let Australia’s international student market collapse

Robert Gottliebsen has rung the alarm that Australia’s international student trade risks falling over if Chinese international students stop arriving in record numbers: Universities are funded by taking in foreign students who pay full fees. Many of these students come from China. Chinese universities have adapted their courses to fit the modern world… In other

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“Bullshit jobs” easy come, easy go

As Australia builds its powerful new “bullshit jobs” economy, it’s useful to contemplate some of the downsides, via FTAlphaville: Any student of emerging markets will tell you that financing a current account deficit with imported capital always seems like a good idea. That is, until investors panic and want their money back. But what if

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Morrison Government spruiks new “high skill” fast track visas

Federal Immigration Minister David Coleman is to release details of its Global Talent Scheme (GTS) visa program today, with visas for 5,000 “high-skilled” people from around the world to be fast-tracked each year. Coleman says the Global Talent Independent Program will focus on no more than five or six sectors, with fintech, quantum computing and

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Tiny Tim scurries for cover on wage smashing IR reforms

Few have done more to damage the Australian national interest than “Tiny” Tim Wilson. After years of poisoning the science of climate change, enjoying red carpet rides into positions of power he wasn’t qualified for, distracting the nation from historic policy reform with marginal social issues, running corrupt bucket shops to get elected, and lying on

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LVO talks pharmacy reform on Radio 2GB

This morning I gave the above interview on Radio 2GB whereby I explained why Australia needs to reform pharmacy ownership rules to boost competition and lower prescription drug costs. This interview is based largely on an article published last week entitled, Chemist Warehouse declares war on rent-seeking Pharmacy Guild.    

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NAB business survey: Consumer bunkers

The July NAB business survey is out and is poor: Confidence was OK. Conditions were ordinary. Employment continues to soften: Leading indicators remain weak: Capacity utilisation is crumbling: The consumer is fooked. Mining does not see what’s coming: The consumer is royally-fooked in fact: Time to smash wages, ScoMo? Full report.