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 Leith van Onselen Last week it was Soul Patterson’s CEO, Todd Barlow. Today, former Business Council of Australia president, Tony Shepherd, has warned that the Australian economy lacks diversity and is too reliant on resource exports. From The Australian: Mr Shepherd argued that a key risk to Australia’s prosperity was its economic vulnerability. He said the
By Leith van Onselen Farmers and tourism operators have hit back at the union movement for lobbying to restrict access to working holiday maker visas, claiming it would decimate regional economies. From The Daily Telegraph: Government analysis reveals the Australian Council of Trade Unions push to scrap the second year of the program would send
Last night I gave an interview on Radio 2GB debunking the notion that Australia has a widespread skills shortage, as often portrayed by the business lobby and government. The interview begins at around the 1.18 mark and runs to around 1.25. One point of correction. I said that café managers were part of the top-5
By Leith van Onselen The Australian Bureau of Statistics yesterday released its overseas short-term arrivals and departures figures for November, which continued to show a trend rise in the number of inbound visitors, with both Chinese arrivals and student arrivals hitting an all-time high. The number of short-term visitor arrivals rose by 6.4% in November
By Leith van Onselen Today’s Lending Finance data for November, released by the ABS, revealed that personal and renovation finance continues to collapse. Personal finance commitments were down 9.5% over the year, are down 26% since the March 2013 peak, and are tracking at the lowest level since late 2002: In a similar vein, renovation
From Roy Morgan Research: Roy Morgan Business Confidence fell by 1.6pts (-1.4%) in December to end 2018 at 112.2 continuing a trend which has seen Business Confidence decline in six out of the last seven years in the final month of the year. Business Confidence ended 2018 a significant 5.2pts below its level of a
By Leith van Onselen Systemic wage theft, usually involving migrants, continues to pervade across the Australian economy. Over the weekend, we got another dose, with a Melbourne company and two individuals fined $335,664 for underpaying Chinese workers at a Melbourne 7Eleven franchise and Japanese restaurant. From Human Resources Director: Xia Jing Qi Pty Ltd, which
By Leith van Onselen Once again, the chair of the Migration Council of Australia (MCA) and big business lobbyist for the Australian Industry Group (AIG), Innes Willox, has penned an article in The Australian claiming that skills shortages are widespread, thus necessitating ongoing mass immigration, while also hypocritically bemoaning high youth labour underutilisation: Just as skill
By Leith van Onselen The latest Roy Morgan Research (RMR) unemployment estimate for December rose 0.2% to 9.7% but fell 0.1% over the year: Below are the key points from the release: Australian unemployment of 9.7% (down 0.1%) and under-employment of 8.8% (down 0.8%) are both down on a year ago driving a 0.9% fall
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released visitor arrivals and departures data for the month of November, which again posted turbo-charged net annual permanent and long-term arrivals. In the year to November 2018, there were 828,980 permanent and long-term arrivals into Australia – up 7% from November 2017 and an
Cross-posted from Prosper Australia: Real estate cycle expert Bryan Kavanagh says turnover and price declines in Sydney and Melbourne during 2018 indicate an economic recession in the 2019-20 financial year. The 2018 “Kavanagh-Putland Index”, released today, shows the total value of Australian real estate sales to GDP. Mr Kavanagh said the $50 billion pumped into
By Leith van Onselen Amid the slump in consumer sentiment and the apparent tanking of retail sales over Christmas, Robert Gottliebsen (“Gotti”) has hit the panic button. From The Australian: In the years leading up to the second half of 2018 we went through a period where banks hosed money at people seeking a resident
Via Damien Boey of Credit Suisse: In our recent article “Crying wolf against the little engine that could” dated 15 November 2018, we suggested that domestic demand growth would slow sharply, and that the RBA could be forced to cut rates in response. We have updated our proprietary activity tracker used in the article, for
By Leith van Onselen Soul Patterson’s CEO, Todd Barlow, has delivered a nice reality check to Australia’s economists, warning that the economy is far too reliant on services for growth. From The Australian: Mr Barlow told The Australian the nation’s shift towards service-based industries, and away from manufacturing, created problems when consumers “tightened their belts” and
By Leith van Onselen The news for Australia’s retail sector continues to worsen with a leading corporate restructuring experts, Ferrier Hodgson’s James Stewart, warning that the collapse in shopping centre traffic in the two weeks prior to Christmas was the worst he’s seen in more than 20 years. From The Australian: Shoppertrak, an analytical tool
By Leith van Onselen The ABS has released engineering construction data for the September quarter of 2018, which revealed a 3.8% seasonally adjusted decline in the value of work done over the quarter and a 34% decrease over the year. The construction pipeline also retraced. According to the ABS, private sector engineering construction slumped by 6.4%
By Leith van Onselen Hot on the heels of the heavy 15% decline in new car sales, motorcycle sales have also tanked: Australia’s motorcycle market contracted 8.7 per cent in 2018, with total sales for the full calendar year of 95,080 according to official figures released by the Federal Chamber of Automotive Industries (FCAI). …of
From Westpac: The Westpac-Melbourne Institute Index of Consumer Sentiment fell 4.7% to 99.6 in January from 104.4 in December. The ‘cautiously optimistic’ consumer mood that prevailed through 2018 has evaporated with sentiment beginning the new year with a slightly pessimistic view. At 99.6, the Index is below the 100 level, indicating that pessimists outnumber optimists,
By Leith van Onselen Australia’s infrastructure deficit is now projected to be around $800 billion, according to The Australian: Engineers Australia last year estimated the infrastructure deficit — classified as the amount needed to bring the nation up to scratch — at $800bn. Infrastructure Partnerships Australia (IPA), the private think tank, has put the figure
By Leith van Onselen Last week it was Crabtree & Evelyn. Today, menswear retailer Ed Harry has been placed into voluntary administration, placing the fate of 87 stores and nearly 500 staff in doubt. From The Australian: On Tuesday, KPMG’s Brendan Richards and Gayle Dickerson were appointed voluntary administrators after a “particularly tough” Christmas sales period for
By Leith van Onselen Labor and the union movement has sparked a pre-election war with farmers over its plan to restrict access to working holiday maker visas. From The Daily Telegraph: The Australian Council of Trade Unions is using its influence to pressure Bill Shorten to review the scheme with a view to ban backpackers
By Leith van Onselen Last month, the Morrison Government stacked the board of the Fair Work Commission (FWC) with business interests, thus ensuring that it remains a ‘toothless tiger’: The Australian can reveal that Jobs and Industrial Relations Minister Kelly O’Dwyer has appointed six new deputy presidents — including four who have worked directly for employer
By Leith van Onselen A special Roy Morgan survey taken in mid-December shows 44% of Australians think 2019 will be ‘better’ than 2018, 32% say 2019 will be ‘the same’, only 14% say 2019 will be ‘worse’ and 10% don’t know. Australians are far more positive about 2019 than they were a year ago when
By Leith van Onselen A new year and another major opinion poll shows the majority of Australians oppose mass immigration and a bigger Australia. That’s right, according to a new survey from the Australian National University (ANU), just three out of 10 Australians believe the nation needs more people. From The SMH: Almost nine out of
Cross-posted from Independent Australia: Without a fundamental change to economic thinking, we will continue down the dystopian road, argues Stephen Williams. THE HEAD of the Muppet Show, Scott Morrison, met with state and territory leaders in Adelaide recently for the COAG chinwag. Topping the list of agenda items was population. I will try and summarise the population problem as
By Leith van Onselen More evidence of weak Christmas trading has come to light, with Kmart recording its first like-for-like sales decline in years. From The Australian: Like-for-like sales at Kmart for the December half have crashed to a fall of 0.6 per cent, against sales growth of more than 3 per cent for the
By Leith van Onselen The Federal Chamber of Automotive Industries (FCAI) has released its new car sales figures for December, which revealed a heavy 14.9% decline in overall sales relative to December 2017, driven by a massive 26.3% decline in passenger motor vehicles (PMVs): “New vehicle sales results in 2018 reflect a challenging climate across
By Leith van Onselen Last week, the ABS released dwelling approvals data for November, which revealed that apartment approvals have tanked by 37% since their May 2016 peak: To add further colour, below are charts plotting the breakdown of approvals by type for each of the states and territories, which are presented below in rolling
By Leith van Onselen Over the weekend, newly minted NSW Labor Leader, Michael Daley, launched another hypocritical attack over the rampant over-development across Sydney via The SMH: NSW Labor leader Michael Daley will tear up the city’s housing supply targets if elected, arguing western Sydney has been hit with “rampant” development while affluent areas have
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released retail sales figures for the month of November, which recorded a 0.4% rise in retail sales over the month in seasonally-adjusted terms, with annual sales growth falling to 2.8%: In trend terms, annual retail sales growth was flat at 3.6%. The below chart
