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.


Australian vehicle trips down 75% amid partial virus shutdown

Interesting data from the Grattan Institute shows that traffic on Sydney’s and Melbourne’s roads has crashed 75% amid the coronavirus pandemic: Australians do appear to be changing their behaviour in response to the spatial distancing and quasi-lockdown measures imposed by the state and federal governments over the past weeks. The chart below shows that the


Childcare sector on verge of collapse

Via Domain: Four out of five childcare centres are on the brink of collapse and the out of school hours care industry fears it may never recover from the COVID-19 crisis, with both sectors being told they must wait for financial relief until the government orders them to close. The Early Learning and Care Council


Decimation of Australia’s car industry could literally cost lives

The federal government’s short-sighted decision to allow Australia’s automotive manufacturing industry to close has left the nation desperately short of ventilators, placing lives at risk: The coronavirus crisis is placing immense pressure on the global availability of ventilators, which are needed to pump oxygen into the failing lungs of critically ill patients. Italy’s swamped hospitals


Only a complete shutdown will stop virus spread

Raina Macintyre from the University of New South Wales believes a total lockdown of Australia could potentially stop the coronavirus within two weeks. Stephen Duckett from the Grattan Institute in turn suggests that it could take three weeks or so to halt the virus’s spread. A total lockdown would be enforced by police, and people


Fresh calls to expand money laundering visas

Atlas Advisors Australia has wasted no time in using the coronavirus 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 applications under


Private schools face collapsing enrolments

With unemployment set to rockets and households all over the nation facing falling disposable income, Australia’s private schools are facing a big drop-off in enrolments and fee revenue: The Association of Independent Schools in NSW, which represents 33 per cent of all independent school students in Australia, said COVID-19 coming on top of the bushfires


Virus kills The Block. Hopefully for good

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One quarter of workers swamp myGov in 20 hours

Australia’s Minister for Government Services, Stuart Robert, has confirmed that an extraordinary 3.2 million Australians attempted to login to myGov in only 20 hours: We have facilitated 3.2 million logins to myGov over the past 20 hours. This is just extraordinary demand. We will continue to run this service 24/7 and progressively increase its capacity


150,000 migrants flooded Sydney and Melbourne in 2019

The Australian Bureau of Statistics (ABS) yesterday released its Regional Population report for the 2018-19 financial year, which revealed that Melbourne remained the king of the population ponzi, adding an insane 113,480 people to its population in 2018-19, representing growth of 2.3%. Sydney’s population also surged by 87,065 people in 2018-19, representing growth of 1.7%


Gerry Harvey boycott triggers crocodile tears

Via the AFR’s Joe Aston: …the veteran retailer’s 60 Minutes interview on Sunday was genuinely breathtaking. …the mob’s affront must have really bitten Harvey Norman’s sales. On Wednesday, Gerry backtracked, offering the least fulsome public apology… …Funny, because nobody at News Corp ever thought he was callous. Not a damned soul! Harvey’s outrageous comments hadn’t


Soloman Lew refuses to pay rent

Via The Australian: In one of the single biggest blows to the nation’s embattled retail sector billionaire Solomon Lew has announced the shock closure of all stores within his Premier Investments business, which includes popular fashion chains such as Just Jeans, Portmans, Dotti, Peter Alexander and Smiggle, with the loss of more than 9000 jobs.


Pay freeze for MPs and top public servants

Finance Minister Mathias Cormann has indicated that pay rises for federal politicians and senior public services will be put on hold due to the coronavirus pandemic. Judges and ministerial staff are also among the public sector workers whose pay will be frozen. Former Queensland premier Campbell Newman has suggested that public servants on annual salaries


Ignore economists on virus – lives are at stake

The Australian’s Judith Sloan has taken a timely dig at her own (and my) economics profession, claiming “economists have not shown themselves in a very good light” during the coronavirus outbreak. Sloan notes that some economists have argued that the costs of the coronavirus lockdown will exceed the costs of the virus itself. Some have


Visa system to pit migrants against locals for scarce jobs

The coronavirus lockdown is expected to result in a sharp rise in unemployment and see more Australian workers compete for jobs that are usually held by temporary visa holders. Migration expert Bob Birrell believes the federal government will need to reconsider the visa system and the skilled migration program. Meanwhile, many migrant workers have been


Put Warnie in charge

General SloMo contonues to fight his virus war as if mired in caramel, at Domain: Guests will be banned from attending weddings and no more than 10 mourners will be allowed to attend funerals under a new nation-wide crackdown on public events to halt the spread of the coronavirus. Australians have also been told to


CDC: Wuhan flu survived for 17 days on surfaces…

It appears China has gifted us the super virus, via CNBC: The coronavirus survived for up to 17 days aboard the Diamond Princess cruise ship, living far longer on surfaces than previous research has shown, according to new data published Monday by the Centers for Disease Control and Prevention. The study examined the Japanese and U.S. government efforts


Rundle: If you can’t pay the rent or mortgage…don’t

Via Guy Rundle at Crikey: The Centrelink lines are going round the block, the government has made vague announcements of rent assistance, twitter buzzes with notes from the newly laid-off wondering how they’ll put food on the table and pay the rent and the mortgage. Here’s a suggestion. Do the former by omitting the latter.


Qantas eyes domestic monopoly

Qantas CEO Alan Joyce has urged staff to tell their local MP that Virgin Australia should not get any more help than other airlines to help it cope with the COVID-19 crisis. Virgin Australia is said to be at risk of collapse if the COVID-19 crisis is prolonged, with Moody’s recently downgrading its credit rating


Salt of the ponzi: Australia’s lower density will help fight virus

For years, Bernard Salt – the self proclaimed “unabashed supporter of a bigger Australia” – has produced reams of articles pushing rapid population growth and high density living, warning that to not follow this path would lead to an economic and fiscal catastrophe. Now Bernard Salt has repented somewhat, admitting that Australia’s lower density will


SloMo Government takes credit for Summer virus effect

From the SloMo Gveornment today: Further short term social distancing measures National Cabinet has asked AHPPC for advice on options for the progressive scale up of social distancing measures in response to the COVID-19 outbreak. There was a specific request to look at stronger measures in relation to non-essential gatherings initially, followed by further more