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.
By Martin North, cross-posted from the Digital Finance Analytics Blog: We had significant reaction to yesterday’s post on the “normal” status of high household debt. So today we take the argument further using data from the RBA Household Balance Sheet series (E1) and the recent ABS data on income growth. The traditional argument trotted out
By Leith van Onselen The Australian’s Adam Creighton has penned an interesting article today arguing that Australian real wages growth is likely to receive a short-term artificial reprieve thanks to the minimum wages decision and upcoming changes to the way the consumer price index (CPI) is calculated: Here’s a prediction for you. The workers’ run
By Leith van Onselen The Australian’s David Uren has penned an article today supposedly exposing “Labor’s inequality lie”. Uren sites unpublished data from the Household Income and Labour Dynamics of Australia (HILDA) survey, which shows that the percentage of people who are not able to pay their rent or mortgage on time has fallen from
By Leith van Onselen Wages and earnings growth data this week has revealed the widening gulf between public servants and private sector employees. First, Wednesday’s wages price index frevealed that private sector wages grew by only 1.78% in the year to June 2017, whereas public sector wages grew by 2.39%: Next, yesterday’s Average Weekly Earnings
By Leith van Onselen This week’s economic data has not been kind to Australia’s workers. Wednesday’s wages price index released by the ABS revealed that wages growth across the nation hit another all-time low 1.86%, with private sector workers (1.78% growth) faring much worse than their public sector counterparts (+2.39%): The news wasn’t much better
By Leith van Onselen Another week, another #SardineSydney story in the mainstream media on how the city’s population is swelling way above the capacity of its infrastructure. The latest example relates to Sydney’s long suffering trains, whereby skyrocketing passenger numbers are causing chronic crush-loading. From The Canberra Times: Passenger demand for trains in Sydney has
By Leith van Onselen Yesterday’s ABS labour force release for July revealed some better news for those aged 15 to 24 years old that are looking for a job. Although the trend headline unemployment rate rose from 12.95% in June to 12.97%: Total employment growth for those aged 15-24 years of age has turned positive:
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released the Average Weekly Earnings (AWE) data for the six months to May 2016. A breakdown of the key changes are provided below: According to the ABS, on a seasonally-adjusted basis, national total AWE increased by 1.3% in the six months to May 2017,
By Leith van Onselen As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for July, which registered a solid 27,900 increase in total employment and no change to the headline unemployment rate (still 5.6% after last month’s figure was revised upwards). In trend terms, the unemployment rate fell marginally
It’s still a long shot but worthy of consideration, from RBC: With an already precarious one-seat majority, the Liberal-National Coalition government risks turning into a minority government should the High Court uphold Section 44 of the Constitution and rule the current Deputy PM and leader of the National Party ineligible for Parliament. There must also be
July jobs are out from the ABS and it’s a mixed bag: Employment increased 27,900 to 12,201,400. Full-time employment decreased 20,300 to 8,342,300 and part-time employment increased 48,200 to 3,859,10 Unemployment increased 1,100 to 730,600. The number of unemployed persons looking for full-time work decreased 3,800 to 496,400 and the number of unemployed persons only
Dick and Pauline have enjoyed a Twitter love-in today to help promote his Fair Go campaign. Both come over well. It’s good to see Dick get a platform and good to see Pauline get humanised, which is the best way to defeat One Nation (as opposed to turning them into some titanic resistance movement). Here’s the
By Leith van Onselen A bit of comedy today from Australia’s soon to be ousted federal Treasurer: The Treasurer said the wage data was “as forecast in the budget” — which pencilled in wage growth rising from 2 per cent this year to 3.5 per cent by 2021 — and in line with market expectations.
By Leith van Onselen The Turnbull Government has reportedly back flipped on its promise to allow personal imports of high quality overseas vehicles – so-called “grey imports”. From Motoring.com.au: The Federal Chamber of Automotive Industries (FCAI) has offered its approval of the federal government’s official announcement today that it will not deregulate personal vehicle importation.
By Leith van Onselen CEO of Stockland (and former Property Council President), Mark Steinert, is loving the Australian economy right now, with the company making out like bandits from the immigration-driven population crush occurring across Melbourne and Sydney. From The AFR: Steinert looks at Melbourne and sees a city experiencing the strongest population growth since
Some great charts from Westpac yesterday tells the story of wages. Total hourly wages ex bonuses increased 0.5% in Q3, in line with expectations. It continues to hold just above the record low of 0.4% in 2016 Q4 which overall, a surprisingly soft outcome given the relative positive state of the Australian labour market. The
By Leith van Onselen Bernard Salt – the self-proclaimed “unabashed supporter of a bigger Australia” – took to LinkedIn yesterday in response to Dick Smith’s call for Australia to slash Australia’s immigration intake, calling for Australia’s immigration intake to be shifted away from Sydney and Melbourne: Speaking to Seven News nationally for broadcast tonight. Dick
By Leith van Onselen The Australian Bureau of Statistics yesterday released its overseas short-term arrivals and departures figures for June, which continued to show a trend rise in the number of inbound tourists, with Chinese arrivals continuing to boom. The number of short-term visitor arrivals rose 0.3% in June in trend terms, whereas short-term resident
By Leith van Onselen Of all the idiotic ‘awards’ handed out, The Economist’s ‘Most Livable City’ must surely rank near the top. For the seventh consecutive year, The Economist has named Melbourne the most livable city in the world. From The Age: Melbourne’s seventh consecutive year at the top of The Economist’s liveability index was welcomed
Cross-posted from The Conversation: Any downturn in the construction industry could trigger job losses to a range of sectors that support the building industry, such as planning, project management, real estate and property services. This threat reveals the risk of relying on building and construction to sustain the economy. Since before the global financial crisis,
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released its Wage Price Index for the June quarter of 2017, which revealed a continuation of weak wages growth across the economy, with annual wages growing at the lowest rate in the series’ 20 year history: According to the ABS, wages grew by
By Leith van Onselen After extensive behind-the-scenes lobbying campaign by the Franchise Council of Australia, led by former Liberal Small Business Minister Bruce Billson, the Turnbull Government earlier this year delayed a vote on a bill to prevent worker exploitation. Now the Coalition is in negotiations in the Senate, and the bill reportedly hangs in the
From Westpac: • The six month annualised growth rate in the WestpacMelbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, rose from –0.54% in June to –0.10% in July. Despite the improvement in the growth rate it remains negative for a second
By Leith van Onselen As expected, several “experts’ have lashed Dick Smith’s call to cut immigration, arguing that it would trash the economy. From The Australian: Economists and senior business figures have disputed Dick Smith’s claims that immigration is fuelling inequality and questioned his Grim Reaper campaign to save the nation from its “addiction to
Launched a few hours ago from Canberra.
