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 Earlier this week we reported how tolls on some of Sydney’s roads are rising at triple the rate of inflation, which is hammering household budgets. The news cam after The ABC revealed earlier this year that Sydney’s toll road network is the most expensive and extensive in the world. Now, Statista has
By Leith van Onselen More than one in five businesses audited by the Fair Work Ombudsman (FWO) across three states have been found to have underpaid workers, with employers forced to backpay over $580,000 to nearly 1000 employees. From The Australian: Fair Work inspectors found widespread noncompliance with workplace laws after auditing 1385 businesses in
The housing-led consumer bust has claimed another victim, this time the Reject Shop: The Reject Shop’s chief executive has quit after the troubled retailer announced store closures and slashed its full-year guidance to predict a loss of up to $2 million… “The reduced earnings guidance reflects a tough trading environment in the retail sector which
By Leith van Onselen I reported yesterday how Sydney’s water storages are “dropping faster than they have in decades”, despite falling average water use, which comes as the city’s population continues to balloon on the back of mass immigration: Today, The Guardian reports that NSW towns including Dubbo and Tamworth are facing a water emergency within months:
By Gerard Minack from Minack Advisors Policy is set to be eased in Australia: tax rebates for low and middle income taxpayers, RBA rate cuts, and looser macro-prudential restrictions. While these are helpful, they seem too late to prevent a downturn in residential construction. But the big question is whether wealth effects from already-seen house
By Leith van Onselen Last year, the NSW Government made a hollow promise that Sydney would become a 30-minute city mid-century: Planners envisage that by the middle of this century most Sydneysiders will be able to reach their place of work within 30 minutes using public transport or “active” options such as walking or riding.
In February, the Joint Parliamentary Inquiry into efficacy of current regulation of Australian migration and education agents released its report, which claimed education and migrant agents were behind three quarters of all international student enrolments in Australian tertiary institutions, and documented allegations of unlawful and unethical behaviour by agents and education providers. The report claimed that
By Leith van Onselen As Sydney’s population continues to boom on the back of mass immigration: The city’s water storages are “dropping faster than they have in decades”, despite falling average water use: Sydney’s dams have dropped about a quarter of their volume in the past year to sit at 53.9 per cent full as of
By Leith van Onselen MB has gone to great lengths to expose the crash in real employee incomes that has taken place this decade, as evident by the circa 5% fall in real average employee compensation since March 2012: And the 0.3% real decline in per capita household disposable income since June 2012: Now, research
Via the CBA: Latest PMI data pointed to a return to growth in output across the Australian manufacturing and service sectors in May, following no change in the previous month. In fact, the rise in activity was the first in four months and the strongest in 2019 so far. That said, the rate of expansion
By Leith van Onselen Yesterday’s March quarter construction activity data from the ABS revealed further bad news for the Australian economy, with total construction activity declining by 1.9% over the quarter and by 6.0% over the year: After hitting its most recent peak in June 2018, total construction activity has now fallen for three consecutive
This month’s Four Corners special on Australia’s international student rorts featured several Murdoch University academics, who claimed the University had slashed education standards in a bid to entice international students, whose numbers lifted by 92% between 2017 and 2018. According to these academics, this huge lift in academic students, many of whom did not possess adequate English-language
By Leith van Onselen We already know that Melbourne has experienced insane levels of population growth over the past 14 years, driven by mass immigration: And that the lion’s share of this population growth has taken place in the outer suburbs of the city: Last year, Infrastructure Australia reported that 1.4 million people in the
By Leith van Onselen The ABS has released data on the value of construction work done for the March quarter of 2019, which registered another 1.9% seasonally-adjusted decline in total construction activity over the quarter and a 6.0% decrease over the year: The result badly missed analysts’ expectations of no change (0.0% growth) in construction
DEEWR fades away:
Down she goes, via Westpac: The six month annualised growth rate in the Westpac– Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, declined from –0.13% in March to –0.47% in April. The Index growth rate has been consistently negative over the
By Leith van Onselen If you want a textbook example of how Australian academia has lost its credibility, look no further than the below analysis from University of Western Sydney Economics Professor Raja Junankar. From Yahoo Finance: One of the main arguments cited for reducing the number of migrants is the amount of overcrowding, congestion
More warnings: Double the spend next time Clive.
Via the AFR: Prime Minister Scott Morrison, who spent the day bunkered in meetings and planning his new cabinet, shot down suggestions that he should adopt policy beyond what he took to the election, including in the energy sector. This is despite calls from business and some in his own party to embrace a more
Fresh from Deep T, MB’s big time banking insider: You have no idea of the smugness of the whole mortgage industry. Brokers won and its back to normal pumping debt. Banks and funders will now pump up the amount of debt on serviceability to unsuspecting borrowers. Not solutions just can kicking to a worse disaster.
By Leith van Onselen While residents of Sydney and Melbourne are suffering from crush-loaded roads, trains, schools, and hospitals, as well as hideously expensive housing, toll road companies like Transurban are making out like bandits. Earlier this year, ABC News reported that Sydney’s toll road network is the most expensive and extensive in the world:
I’ve tried my hardest but have failed and the result us upon us, at the AFR: A gas price cut is required for Queensland’s Gibson Island fertiliser plant to avoid closure this year, with owner Incitec Pivot urging the re-elected Morrison Government to ensure gas was ”available and affordable” for Australian manufacturers. Uncertainty over the
The media drivel about the election is as widespread as it is wrong. ScoMo is not a saviour of anything. He lost LNP votes and was fantastically fortunate to regain them through preferences from people voting for change. Moreover he did so by promising to do nothing so what now can he do?. Let’s run
By Leith van Onselen Ivailo Izvorski – Lead Economist, Global Practice Macroeconomics at the World Bank – has penned a ripping article debunking the mainstream view that population ageing spells doom for the world’s economies: Longer and more productive lives should be celebrated as an achievement of mankind rather than considered a problem. Longevity, however,
As regular readers will know, China has been at the forefront of Australia’s international student boom. In the five years to December 2018, the number of international students residing in Australia surged by around 60% to half-a-million, as illustrated in the next chart: The lion’s share of international students studying in Australia comes from China,
Last month, the Sustainable Australia party released a report, entitled Three Economic Myths about Ageing: Participation, Immigration and Infrastructure, which was co-authored by Dr Cameron Murray and I. Below are the Overview, Executive Summary and Key Findings from our report: Overview Population ageing due to longevity is one of the greatest successes of the modern era.
Via Damien Boey at Credit Suisse: Against the odds, the LNP has won the Australian Federal election. In his victory speech, Prime Minister Morrison said that he had always believed in miracles. He described the election victory as a miracle – but over and above the first miracle he had already experienced in the form
By Leith van Onselen Western Sydney is the epicentre of the city’s working class. It is a prime dumping ground for the federal government’s mass immigration ‘Big Australia’ program. And it has become a virtual “special economic zone” where wages can be shredded with impunity by the wealthy owners of capital living in the East.
By Leith van Onselen I have ridiculed the push by Coalition politicians towards decentralisation, noting that this is a pipe dream based on the settlement pattern of new migrants, which have overwhelmingly chosen to flood the major cities: Well, the situation is even worse than presented above with new ANU research of settlement patterns showing
By Leith van Onselen Yesterday’s ABS labour force release for April revealed a deteriorating Australian youth labour market – i.e. those aged 15 to 24 years old – with both full-time and total jobs growth falling and unemployment and underemployment rising. The trend headline unemployment rate rose to 11.8%: Total employment growth for those aged
