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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Chinese tourism hit another record high in August

By Leith van Onselen The Australian Bureau of Statistics yesterday released its overseas short-term arrivals and departures figures for August, 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 fell 5.8% in August in original terms, whereas short-term resident

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Long-term arrivals into Australia hit another record

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released visitor arrivals and departures data for the month of August, which registered another lift in annual permanent and long-term arrivals, which remains at turbo-charged levels. In the year to August 2017, there were 777,430 permanent and long-term arrivals into Australia – up 6%

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IMF warns on Australia’s rapidly growing debt

By Leith van Onselen After downgrading Australia’s growth outlook last week, the International Monetary Fund (IMF) has turned its sights to Australia’s huge pile of debt and the nation’s vulnerability to “risk premium shocks”. From The Australian: Debts have risen faster over the past decade in Australia than in most other G20 nations, leading the

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What is the Real Estate Treasurer doing in New York?

Interesting stuff as the Real Estate Treasurer continues his bubble-defence world tour: When Treasurer Scott Morrison met Goldman Sachs chief executive Lloyd Blankfein in New York late last week, the Wall Street banker was baffled. Blankfein was searching for answers. Why, at a time when most economies were generally performing reasonably, had politics become so

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The dark side of consumer sentiment

From Bill Evans, following up last week’s Consumer Sentiment Index: This week we saw a strong lift in the Consumer Sentiment Index. The Westpac Melbourne Institute Index of Consumer Sentiment rose 3.6% to 101.4 in October from 97.9 in September. It is the first time since November last year that optimists have outnumbered pessimists and

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SA Premier Jay Weatherill rejects East Coast population ponzi

By Leith van Onselen The lobby group representing migration agents has warned that South Australia’s population growth could fall to zero following visa reforms by the federal government. From The Advertiser: Immigration experts are warning that the state’s population growth could slow to wards zero per cent and economic problems will worsen if changes to

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Shorten tosses a symbolic billion on manufacturing funeral pyre

Our Bill has donned the hard hat: Labor is promising to help embattled manufacturers by establishing a $1 billion loan fund to help the sector modernise factories and move into high value production. In a speech to the South Australian Labor conference on Saturday, Opposition Leader Bill Shorten said he would commit to creating an Australian Manufacturing

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The paradise that is Sydney 2037

Some days this place truly is a mad house, Domainfax: Self-driving cars on roads with solar panels, hologram commercials, drones making deliveries, skyways between buildings, a magnetically-levitating train pulling into Circular Quay and trees. Lots more trees. It’s a view of how Sydney could look in 20 years. A virtual reality vision of the future city has been launched

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IMF downgrades Aussie outlook

Via ABC: Weaker mining exports and housing investment hurt by bad weather earlier this year have prompted the International Monetary Fund to cut its growth forecasts for the Australian economy. In what appears to be a blip, the IMF’s latest World Economic Outlook released overnight has sharply revised Australian growth down to 2.2 percent in

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The crippling cost of Sydney infrastructure projects

By Leith van Onselen I have noted previously that one of the key reasons why Australia’s high population growth (immigration) is lowering the living standards of existing residents is because of the strain that it places on infrastructure, which inevitably leads to more congestion on roads, public transport, as well as more expensive housing. Basic

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Roy Morgan unemployment begins to rise again

By Leith van Onselen The latest Roy Morgan Research (RMR) unemployment estimate for September registered a 1.1% decline in the unemployment rate over the month but a 0.6% increase over the year, with underemployment also rising significantly: Below are the key points from the release: In September 1.202 million Australians were unemployed (9.1% of the

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Shorten tilts at wages “grand bargain” windmill

Via Domainfax: Unions, business and the federal Parliament should come together and strike a “radical” grand bargain that would deliver a much-needed pay rise for ordinary Australians, Labor leader Bill Shorten says. …In the speech, the Opposition Leader argued Australia is in danger of having growth without prosperity, and there has been a growing divide

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Why slashing penalty rates is misguided policy

Cross-posted from The Conversation: A Senate committee has finally handed down a report on the Fair Work Commission’s decision to reduce Sunday penalty rates for workers in a range of service industries. The report recommends that the government bring in legislation to overturn the decision, citing mixed evidence of the impact of the penalty rate

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Consumer buys a little Botox Boom

Hooray! From Westpac: • The Westpac Melbourne Institute Index of Consumer Sentiment rose 3.6% to 101.4 in October from 97.9 in September. This is the first time since November last year that optimists have outnumbered pessimists and represents the highest level of the Index since October last year. Consistent reports of an improving global economy

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University degree printer delivers 22 unemployed graduates for every job

By Leith van Onselen From The SMH comes a report on the dire situation facing Australia’s university graduates: Across Australia, about 22 university graduates are competing for every new graduate position and many will need to settle for low-paying entry roles “just to get their foot in the jobs market”, a new national report has

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Labor market standards implode around migrant exploitation

By Leith van Onselen Ever since the 7-Eleven migrant worker scandal broke in 2015, there has been a regular flow of stories emerging about the systemic abuse of Australia’s various migrant worker programs. The issue was highlighted in all of its hideous glory when the Senate Education and Employment References Committee released a scathing report

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Property rent seeker defends Sydney’s population ponzi with lies

By Leith van Onselen In response to this week’s Fairfax-ReachTel poll, which found that two-thirds of Sydney’s population believe Sydney is full and that its growth should stop (read here), Chris Johnson from the Urban Taskforce – “a non-profit organisation representing Australia’s most prominent property developers and equity financiers” – has penned the following spurious

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Melbourne hurtles towards sardine-packed future

By Leith van Onselen With Melbourne’s population surging by an insane 556,000 in the five years to 2016: And with Melbourne’s population projected to explode by 97,000 people a year to 8 million mid-century: The Victorian Government has been forced to resort to creative measures to ease congestion, like new sardine configuration trains. From The Age: