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.
From CBA’s head of Australian economics, Gareth Aird: RBA Deputy Governor Guy Debelle listed four ‘other’ options to ease monetary policy further: (i) purchase bonds further out on the curve (supplementing the three year yield target); (ii) foreign exchange intervention; (iii) cut the current structure of interest rates in the economy without going negative; and (iv) negative rates. Purchasing
The Australian Federation of Travel Agents has urged the federal and state governments to provide targeted assistance for the industry, which has been amongst the hardest hit by the COVID-19 pandemic. Travel agents qualify for financial hardship assistance if their turnover has fallen by 30%, but many have experienced a decline of 90% or more.
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The Australian Bureau of Statistics (ABS) has released its Weekly Payroll Jobs and Wages in Australia survey, which reveals that the number of payroll jobs remains 4.5% lower than pre-COVID levels, whereas total wages are down 4.3%: Key statistics Between the week ending 14 March 2020 (the week Australia recorded its 100th confirmed COVID-19 case) and
Historically low interest rates and government incentives are prompting more first-home buyers (FHBs) to enter the housing market. However, according to Robert Gottliebsen, renewed talk of reintroducing death taxes will sap the confidence of FHBs: After lying dormant for many years, death taxes are suddenly re-entering the speculative arena. And so to treasurer Josh Frydenberg
Victoria recorded 28 new COVID-19 infections overnight, a significant rebound from yesterday’s multi-month low of 11. However, it recorded only 3 deaths. The 14-day trend, which is what the Victorian Government is looking at in order to ease Melbourne’s restrictions, has fallen to 32.8: NSW recorded only 2 new COVID-19 infections, with the trend
Amendments to the Corporations and Bankruptcy Acts – including the relaxation of insolvent trading laws for six months – have delayed business insolvencies and related personal bankruptcies during the COVID-19 crisis. These rules, alongside massive emergency income support and debt repayment deferrals, have seen personal insolvencies plunge to record low levels: Whereas the number of
A recent report from the Centre for Future Work showed that enrolments in apprenticeships and traineeships have collapsed since 2012, and projected a further 30% drop in new apprenticeships (with 130,000 fewer positions) resulting from the COVID-19 pandemic to 2023: The report also showed that government Vocational Education and Training (VET) spending has languished far
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The mistake of 1937 is a very useful historical guide for policymakers wrestling with an economic depression. Via the ECB: The economic conditions can be summarized as follows: 1) There are signs that the depression is finally over. 2) Interest rates have been close to zero for years but are now finally expected to rise.
Earlier this month, we reported how the Morrison Government’s JobKeeper subsidy has been an absolute boon for Australian business owners, juicing company dividends and profits. This was reflected in the latest national accounts for the June quarter, which showed that employee wages & salaries fell by 3.3% over the quarter while company profits soared by
From CBA’s head of Australian economics, Gareth Aird: Key Points: We have upwardly revised our profile for Australian GDP growth, based largely on a significant upgrade to Q320. GDP is now forecast to rise by 2.0% in Q3 20 GDP compared to our previous estimate centred on a broadly flat outcome. GDP in 2020 is
Callam Pickering, economist at global Jobs site Indeed, has updated his weekly job postings data, which shows that Australia’s labour market continues to improve outside Victoria: Specifically, Victorian job postings are tracking 51% below last year’s trend, compared with a 19% gap for the rest of Australia. Moreover, the gap between Victoria and the rest
Via FTAlpahville comes a VERY IMPORTANT post for Australia: This is a guest post by Leo Hindery, Jr, a member of the Council on Foreign Relations and formerly CEO of AT&T Broadband and its predecessor, Tele-Communications, Inc. (TCI). He is currently Chairman and CEO of Trine Acquisition Corp., a NYSE-listed company which he founded. The
Back in March, Atlas Advisors Australia wasted no time in using the COVID-19 pandemic as an excuse to lobby the Morrison Government to open the floodgates to Significant Investor Visas (SIV) – affectionately known as “Golden Ticket Visas”: About $100 million could provide a lifeline for start-ups and emerging companies crippled by the coronavirus if
Abul Rizvi believes that Australia’s permanent migration program may contribute zero to net overseas migration (NOM) in 2020-21: In 2019-20, the Government delivered a migration program around 20,000 places below the ceiling of 160,000. A record 70 percent of the skill stream was delivered to people already living and/or working in Australia. For the family
The latest RBA Bulletin contains an interesting report on COVID-19’s impact on Australia’s labour market, in which the RBA warns that unemployment may take a decade to fully recover: The COVID-19 pandemic has led to a rapid deterioration in labour market outcomes, some of which may be long-lasting. This article examines the long-lived effects of
The Morrison Government is reportedly gearing up for ‘astounding’ expenditure in the upcoming federal budget, centred around bringing forward $14 billion of tax cuts: The Morrison government is preparing to unleash an “astounding” amount of spending in next month’s budget to drag the country out of its first recession in 29 years with the nation
Via the ABC: Australia’s official unemployment rate fell last month from 7.5 per cent to 6.8 per cent. The result surprised basically all economists, including those at Treasury and the Reserve Bank, who were expecting the unemployment rate to deteriorate again. So what happened? According to the Bureau of Statistics, the number of employed persons
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Yesterday’s ABS labour force release for August revealed that Australia’s youth – i.e. those aged 15 to 24 years old – led the nation’s jobs rebound. The headline youth unemployment rate fell 2.0% to 14.3%, although it remains nearly three times higher than the rest of the labour market (5.4%): Of more interest, youth jobs
A nationwide survey of international students and temporary migrants reveals anger at being excluded from welfare payments like JobKeeper and JobSeeker. Accordingly, many would not recommend Australia as a destination: A nationwide survey of 6000 visa workers and overseas students found that 70 per cent had lost work during the pandemic and 28 per cent
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Cruelty is a ScoMo specialty. Whether it’s abandoning burning Australians, forcing media shots out of those that hate him to show how compassionate he is, dragging the chain on lifesaving COVID measures, or rescuing Australians stuck overseas amid a once per century shock, there is something missing in this bloke. And today our psychopathic PM
Via The Australian this looks promising: The Morrison government will consider a $25bn private sector-led energy infrastructure plan that could underwrite more than one million jobs, reduce energy costs and boost wages — while also fuelling economic growth by up to 2 per cent. The proposal, which has been submitted to the government, includes major
As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for August, which registered a massive 0.7% decrease in the official unemployment rate to just 6.8% off an 111,000 rebound in jobs: Full-time jobs rose by 36,200, whereas part-time employment surged by 74,800: The participation rate rebounded another 0.09% to
Burn you bastard. Burn! At the ABC: A government program to bring international university students back to Australia is yet to get off the ground, as businesses reliant on overseas students warn the market will take years to recover, even in the unlikely event borders reopened for next year’s semester one intake. The Federal Education
Except in the identity politics minds of the lobbyists there is no such thing as “business”. Via the AFR, the most outstanding example: Employer groups are at war with one another over possible changes to the enterprise bargaining system, further damaging the prospects for the Morrison government of making any substantive industrial relations reform that
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