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.


ABS employment in detail: Another dead cat bounce

As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for December, which registered a 28,900 increase in total employment and a decrease in the headline unemployment rate (from 5.2% to 5.1%). In trend terms, the unemployment rate also fell to 5.1%: Again, total employment rose by a seasonally adjusted


UBS: Gas crash to provide power price relief

Via UBS: Wholesale electricity price futures are sharply lower Our updated wholesale electricity price forecast expects prices will average $74/MWh across the National Electricity Market (NEM) in CY20, declining to $70/MWh in CY21—reflecting a material revision down from our prior forecast. Baseload futures through CY20-21 are sharply lower than 3 months ago and our mark-to-market


SEEK jobs ads plunge

Some blather from SEEK today trying to hide the obvious: SEEK data shows that a large proportion of Australians are looking and actively applying for interstate employment opportunities. Hobart is the most popular destination, with 64.3% of applicants coming from interstate or overseas. Brisbane followed, with 43.6% of candidates applying from external locations. Majority of


Jobs weak but…

But not weak enough for RBA’s meeting, I suspect. Via ABS: SEASONALLY ADJUSTED ESTIMATES Employment increased by 28,900 to 12,981,600 people. Full-time employment decreased by 300 to 8,834,700 people and part-time employment increased by 29,200 to 4,146,900 people. Unemployment decreased by 12,900 to 693,100 people. Unemployment rate decreased by 0.1 pts to 5.1%. Participation rate


Bonds, not stocks or houses, are pointing to Australia’s future

And it ain’t pretty. The Aussie bond market boom is back with more 2020 highs (yield lows): It has steepened a little since last year, but the curve is still inverted out to the five year indicating weak growth at best and high recession risk for years ahead: In turn, this has spreads falling versus


Australian tourism is about to be crushed

It’s reeling from bushfires, via The Australian: Hoteliers and tourism executives say the “worst summer on record” has cost the nation $2bn and could wipe a further $4.5bn from the industry, as Tourism Australia unveils the first part of its multi-layered bushfire rescue package. Domestic tourism has been hit by the fires and subsequent hazardous


Retailpocalypse continues as Kaufland abandons Australia

Australia’s retail apocalypse continues, with German giant Kaufland announcing an “orderly withdrawal” from Australia despite sinking more than half a billion dollars of investment: The company had been set to open as many as 30 stores in Australia and had bought a number of warehouse and retail locations around the country… In June last year


More evidence Black Friday has slain Santa

More evidence has emerged that Black Friday dampened Christmas retail sales, with NAB’s Cashless Retail Sales Index recording an annual rise in November followed by a decline in December: Our data mapping suggests that the ABS retail trade measure will fall 0.1% m/m in December. The ABS printed a 0.9% gain in November, while we


Dan’s dodgy West Gate Tunnel besieged by scandal

The controversies surrounding the Victorian Labor Government’s $6.7 billion West Gate Tunnel continue to pile up. By way of background, the project was inked in late-2017 when Premier Daniel Andrews signed a shady deal with Transurban to build the project, which would see Transurban contribute $4.4 billion towards the cost in exchange motorists paying $15


Former Liberal MP: Mass immigration trashing quality of life

Former Liberal MP and Gosford Mayor, Malcolm Brooks, has attacked Australia’s policy makers for encouraging “unchecked” population growth, claiming that it is destroying our quality of life: “Unchecked population growth will have a dramatic impact on our quality of life and our politicians seem to be oblivious to this fact,” Brooks said. “Without adequate planning


Consumer sentiment continues free fall

Via Westpac: It is entirely reasonable to have expected that the Index would have fallen during this period of devastating bushfires. Perhaps it is somewhat surprising that the fall in the Index was not more severe particularly in light of the 5.8% fall we saw during the Queensland floods in 2011. However the fall in


It’s time to abolish costly parental visas

In its 2016 Migrant Intake into Australia report, the Productivity Commission (PC) estimated that the circa 9,000 elderly permanent parental visas granted every year cost Australian taxpayers between $2.6 and $3.2 billion in present value terms, or between $335 000 and $410 000 per elderly adult, with the cost rising over time as numbers increase.


Frydenberg molests confidence fairy

After dropping a roofy in her drink, amateur Treasurer Josh Recessionberg has had his way with the confidence fairy, writing at The Australian: With that [trade] deal concluded and concerns about a “no-deal” Brexit having diminished, the IMF updated its global economic outlook yesterday and pointed to tentative signs of improved market sentiment. …The IMF


Australia is about to become coronavirus ground zero

There are two angles to examine as coronavirus spreads in China and South East Asia. The first is health related. The second is economic. Australia is about see a wave of new Chinese tourists and students just as coronavius slips the CCP noose. Some 350k Chinese toursists arrive through the January/February period, a large swath


Preasure builds on SmoCo for “generous investment allowance”

Australian Industry Group (AIG) chief, Innes Willox, has called on the Morrison Government to implement a Labor-style investment allowance to spur business investment: …we propose the introduction of a generous investment allowance to bring forward and increase business investment. It would allow businesses to deduct for tax purposes a larger proportion of their expenditure on


Hail storms to rescue new car sales

Car dealerships have endured a nightmare 18 months, with new car sales collapsing to the lowest level since 2012, according to the latest data from the Federal Chamber of Automotive Industries (FCAI): However, the hail storms that have ripped through Melbourne, Canberra, Sydney and South East Queensland over the past week could prove an unlikely


Roy Morgan underemployment surges

The latest Roy Morgan Research (RMR) unemployment estimate for December softened, rising by 0.6% over the month to 8.7%: However, over the year, unemployment fell by 1.0%. Underemployment surged by 1.9% over the month and by 1.1% over the year, with labour underutilisation tracking at 18.6% (up from 0.1% from a year ago): Below are


Business confidence ends 2019 in the toilet

Business confidence ended 2019 on a sour note, with Roy Morgan’s latest monthly business confidence index crashing to an eight-month low amid concerns surrounding the Australian economy: In December 2019 Roy Morgan Business Confidence dropped 3.9pts (-3.6%) to an eight-month low of 104.5. Declining sentiment about the performance of the Australian economy over the next


SmoCo isolated as business swings to climate change action

Via Deloitte: A new global report from Deloitte shows that 81 percent of Australia’s business leaders believe that climate change will have a negative impact on their business operations (compared with a global average of 48 percent). The report, The Fourth Industrial Revolution: At the intersection of readiness and responsibility, surveyed more than 2,000 C-suite


International tourism goes up in smoke

Via The Australian comes some bad news: The Morrison government has announced a $76 million tourism recovery package aimed at halting an alarming decline in international bookings in the wake of Australia’s bushfire crisis. Minister for Trade, Tourism and Investment Simon Birmingham said with bookings from key international markets down by as much as 30


Deloitte: Ignore that stink, it’s only the economy

Via “Deloitte Access Economics Business Outlook Q4 2019: Cratered confidence weighs on growth”: 20 January 2020:  Global growth is towards the lower end of the range seen since 2011.  That’s not dramatically weak:  growth is disappointing rather than dire.  Yet the slowdown is widespread:  most of the world has felt the chill of weaker growth in the