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.
Businesses incessant claims about ‘skills shortages’ has been shattered again, with university graduates taking 2.6 years after graduation to land a full-time job, according to a recent report from the Foundation for Young Australians: The proportion of young Australians in full-time work prior to age 25 has also declined markedly over the past 30 years.
A fortnight ago I reluctantly shifted from my Telstra BigPond cable broadband service to the same priced NBN 50 service after being warned that my existing cable service was about to be switched off. As I noted at the time, I experienced an immediate downgrading in my internet download speed from the following (taken immediately
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Hoocoodanode? September key figures Seasonally adjusted, percentage change (a) Jun 18 to Sep 18 Sep 18 to Dec 18 Dec 18 to Mar 19 Mar 19 to Jun 19 Jun 19 to Sep 19 Sep 18 to Sep 19 Chain volume GDP and related measures (b) GDP 0.3 0.2 0.5 0.6 0.4 1.7 GDP per
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The September quarter Business Indicators report was released by the ABS, which includes aggregate wages & salaries data, namely “gross earnings before taxation and other deductions” and “includes provisions for employee entitlements”. In order to get a better sense of how Australian workers are faring, I have deflated this aggregate nominal wages & salaries data
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