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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Less ‘B’ in the CBD?

By Ross Elliott, cross-posted from The Pulse The next Census will be conducted in August 2021, by which time you’d expect economic life has largely settled around ‘a new normal.’ It’s pretty clear that when the data is released on place of work, CBDs will probably have fewer people working in them than the previous

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States pressure ScoMo on quarantine

State Governments are growing increasingly agitated over quarantine arrangements and are expected to turn up the pressure on the federal government at today’s National Cabinet meeting. A fight has broken out between the NSW Government and its counterparts in Queensland and WA after NSW sent both states an invoice for $7 million (WA) and $30

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PBO: National cost of COVID response to reach $327bn over five years

The Parliamentary Budget Office (PBO) has released its National Fiscal Outlook, which estimates that the combined net debt of Australia’s three levels of government will blow out to almost $1.3 trillion in the five years to 2024. Federal, state and local governments are forecast to collectively spend some $327 billion on COVID-19 measures over the

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What do consumers buy post-vaccination? Travel

BofA with a terrific little insight into what consumers buy the moment that they feel confident that they’ve seen off the virus: Post-vaccine behavior–generational data: We focus on spending trends amongst traditionalists which are aged 73–92 and are therefore most likely to have received the COVID vaccine. In particular, spending on airfare surged for traditionalists

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Household disposable income tanks as stimulus unwound

According to Deloitte, $24.2 billion of fiscal stimulus was withdrawn from the Australian economy in the second half of 2020 as JobSeeker and JobKeeper payments were tapered down, alongside the reduction of early superannuation withdrawals (see next chart). Accordingly, Wednesday’s ABS national accounts release for the December quarter reported a sharp decline in household disposable

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SMEs ain’t booming

Via Banking Day: Lousy payments volumes in February and January may put a dampener around relief at the 3.1 per cent rise in GDP in Australia over the December 2020 quarter, which dangled the prospect of achieving the hoped for ‘V-shape recovery’. While housing prices and consumer and business confidence echo the recovery story, research

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Aussie retail sales continue upward march

The Australian Bureau of Statistics (ABS) has released retail sales data for January, with sales turnover rising 0.5% month-on-month to be up 10.6% compared with January 2020. The next chart shows the strong rebound after April’s record 17.7% monthly decline caused by the national coronavirus lockdown: Food retailing (+1.6%) and Other retailing (+1.4%) drove the

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Big retailers hit pay dirt as economy recovers

Yesterday’s national accounts data for the December quarter showed that that household spending rose by 4.3% in the December quarter, with household consumption accounting for 2.3% of the nation’s 3.1% growth in GDP. The economy’s rebound from the COVID-induced recession is proving to be a boon for listed retailers, with many enjoying strong growth in

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Roy Morgan business confidence strongest since 2014

Roy Morgan Research has released its business confidence survey for February, which reported its “highest three-month average sentiment since January to March 2014”. Business confidence rose 0.3pts (+0.2%) to 120.8 in February to be 7.3pts above the long-term average of 113.5 (see next chart). Business Confidence is now 16.2pts higher than it was a year

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Australian border ban extended until June

Fairfax reports that the federal government has announced an extension of Australia’s international border closure until at least 17 June 2021. This will mean that Australia’s international border will have been shut for 15 months after initially closing on 17 March 2020. Health Minister Greg Hunt says the Australian Health Protection Principal Committee had recommended

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Aussies continue to shun public transport

The COVID-19 pandemic continues to adversely impact the nation’s CBDs. According to recent data from Roy Morgan Research, people movements in January were well down on the same time last year across every Australian capital city, with Melbourne and Sydney most adversely impacted (see next chart). With so Australians still working from home and avoiding

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Australian consumer confidence rises back to average

After three consecutive weekly declines following Melbourne’s hard lockdown, the ANZ-Roy Morgan Consumer Confidence Index posted a 1.0% rise on 27/28 February, taking the index to around the long-run average (see next chart). According to ANZ’s head of Australian economics, David Plank, consumers are becoming increasingly concerned about rising inflation, brought about in part by

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Government admits there “are simply not enough jobs”

The federal government recently suspended indefinitely a ‘star rating’ system that ranks privately-run employment services providers. Its decision has been described as ‘galling’ by unemployment support groups, as it comes at a time when the government is increasing its auditing of job applications submitted by unemployed people, as well as implementing a hotline for employers

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Australia drags chain on vaccine rollout

The Australian Medical Association’s (AMA) president Omar Khorshid says the federal government’s goal of vaccinating the entire population by October is looking challenging, and the end of the year is looking more realistic. The federal government has already fallen well short of its target of vaccinating 60,000 people by the end of February, with only

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The shills are beating the drum for mass immigration

As expected, Australia’s business lobby and wealthy elite are growing more vocal demanding the federal government open Australia’s international border to migrants. These groups like mass immigration for three main reasons: It provides a bigger pool of available workers to recruit, thereby increasing competition in the labour market, lowering worker bargaining power, and holding down