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 Melbourne’s manic immigration-fuelled population growth has become the everything issue in the lead-up to next month’s Victorian Election, threatening to throw another government out of office. From The Age: All of a sudden, it’s all about population. Barely five weeks out from November’s state poll, everybody’s talking about Melbourne’s absurd rate
By Leith van Onselen The propaganda used to support a ‘Big Australia’ never ceases to amaze. The latest dose of idiocy comes from Domainfax, who claims that increasing density would be good for our health: The Domain Healthy Sydney study, authored by Deloitte Access Economics and Tract Consultants… showed that some of the city’s densest
By Leith van Onselen A few week’s back, we noted that the collapsing property sales volumes across Australia is a bad omen for prices: The collapse in sales volumes has been particularly sharp in the bubble epicentres of Sydney and Melbourne: Now, CoreLogic has released interesting analysis examining the turnover rate, which has crashed sharply
By Leith van Onselen Over the past several days I lambasted the ABC 7.30 Report’s three-part population special because it failed to mention the policy option of reducing immigration, instead presenting a ‘Big Australia’ as inevitable and maybe even desirable. It was reported as if we have no choice in the matter, so we must
By Leith van Onselen Yesterday’s ABS labour force release for August revealed a softening Australian youth labour market – i.e. those aged 15 to 24 years old – with both full-time and part-time jobs growth weakening. While the trend headline unemployment rate fell to 11.16% in September from 11.24% in August: Total employment growth for
Via Damien Boey at Credit Suisse today: Mixed September labour market report The September labour market report was mixed. Headline employment came in below expectations, rising by only 5.6K in September. However, the composition of jobs growth was actually quite favourable, with full-time employment rising strongly by 20.3K over the month. Part-time employment fell by
By Leith van Onselen As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for September, which registered a soft 5,600 increase in total employment but a sharp 0.3% drop in the headline unemployment rate to 5.0% driven by a sharp 2.4% fall in labour force participation. In trend terms,
The ABS has released September Labor Force and the news is whacko. Jobs stalled while the unemployment rate crashed: TREND ESTIMATES (MONTHLY CHANGE) Employment increased 26,400 to 12,640,800. Unemployment decreased 10,500 to 688,500. Unemployment rate remained steady at 5.2%. Participation rate remained steady at 65.6%. Monthly hours worked in all jobs increased 2.8 million hours
By Leith van Onselen After the Trans-Pacific Partnership (TPP) trade agreement passed the Senate yesterday, Prime Minister Scott Morrison was quick to spin the economic benefits: This landmark agreement is one of the most comprehensive trade deals ever concluded and strips 98 per cent of tariffs for 11 countries with a combined GDP of more than
Via Domainfax: Menswear chain Roger David has announced that it has been placed into voluntary administration after being unable to cope with an influx of international competitors and the “rapid evolution” of online shopping. …At present, there were 57 stores being managed by more than 300 staff across Australia, the statement said. And the consumer
By Leith van Onselen The chair of the Migration Council of Australia (MCA) and big business lobbyist for the Australian Industry Group (AIG), Innes Willox, repeatedly claims that Australian businesses are experiencing widespread skills shortages, and uses this claim to justify current mass immigration policy settings. For example, in February Willox argued that “now is not
By Leith van Onselen In March last year, Transparency International ranked Australia as having the weakest anti-money laundering (AML) laws in the Anglosphere, failing all 10 priority areas. This followed the Paris-based Financial Action Taskforce’s (FATF) mutual evaluation report, which found Australian homes are a haven for laundered funds, particularly from China. In June 2017,
By Leith van Onselen ABC 7.30 Report last night aired part two of its three-part population special (click to read my previous comments on part one and part two). I haven’t bothered to download it, but you can watch it for yourself here. Last night’s episode focussed solely on whether the Coalition’s ‘migrants to the
By Leith van Onselen A few months back, it was reported that Sydney has been economically segregated into two, with privileged white collar workers located in the north and east of the city (above the ‘latte line’), and the poorer working class located in the south and west (below the ‘latte line’): The ‘latte line’
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 visitors, with both Chinese arrivals and student arrivals hitting an all-time high. The number of short-term visitor arrivals fell a seasonal 4.2% in
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released visitor arrivals and departures data for the month of August, which again posted turbo-charged net annual permanent and long-term arrivals. In the year to August 2018, there were 821,660 permanent and long-term arrivals into Australia – up 6% from August 2017 and an
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, lifted from –0.02% in August to +0.21% in September. Despite a lift back above trend this month, the Index growth rate continues
By Leith van Onselen The Productivity Commission’s (PC) latest Trade & Assistance Review, released in April, was scathing of the processes surrounding ‘free trade agreement’ (FTA) negotiations and demanded thorough independent assessment both prior to negotiations commencing, as well as before an FTA is passed by parliament: …the Commission concluded in 2010 that the economic
By Leith van Onselen Australia’s mining lobby has attacked Labor’s opposition to ‘free trade agreement’ (FTA) with Indonesia, claiming it must include an investor-state dispute settlement (ISDS) clause, given the Indonesian government’s recent policy of requiring resources projects to have majority ownership. From The AFR: Australian resources companies, such as Newcrest Mining and Rio Tinto,
By Leith van Onselen The former Victorian executive director of the Property Council of Australia turned Melbourne Lord Mayor, Sally Capp, continues to flip-flop on the immigration-driven population crush afflicting Melbourne. Last month we were told by Capp to embrace a ‘Big Australia’ because it “represents opportunity”: Melbourne Lord Mayor Sally Capp has called on the
By Leith van Onselen ABC 7.30 Report last night aired part two of its three-part population special (see my comments on part one here). I haven’t bothered to download it, since I received zero airtime, but you can watch it for yourself here. Once again, it was a massive disappointment whose critical failure was that
By Leith van Onselen Today’s Lending Finance data for August, released by the ABS, revealed that personal and renovation finance continue to collapse. Personal finance commitments were down 5.8% over the year, are down 24% since the March 2013 peak, and are tracking at the lowest level since December 2002: In a similar vein, renovation
By Leith van Onselen The Government-funded Financial Helpline on track to receive record number of cases this year, with older Australians who can’t meet mortgage or rent payments over-represented, and counsellors starting to field calls from people struggling to switch to principal and interest mortgage payments. From The ABC: “The phones just never stop now,”
By Leith van Onselen The AFR View has launched a shameless, evidence-free, attack on Labor’s reluctance towards so-called ‘Free Trade Agreements’ (FTAs): Labor has caved in to the worst anti-trade instincts of the trade union movement and the party’s left… a raft of promises unveiled by shadow trade minister Jason Clare that would make future
By Leith van Onselen NBN Co CEO, Bill Morrow, last year warned that Australia’s National Broadband Network (NBN) faces damaging competition from the upcoming 5G network, and called for a levy on mobile broadband services, which was thankfully rejected. Today, The AFR reports that one-in-three households are looking at 5G wireless services for their home internet connection, thus
By Leith van Onselen In the wake of the union movement threatening to pull support from Labor at the next election after it agreed to support legislation to ratify the Trans-Pacific Partnership (TPP), as well as growing opposition within its own ranks, Labor’s Jason Clare introduced a private member’s bill aimed at placating their concerns. From
By Leith van Onselen ABC 7.30 Report last night aired part one of its three-part population special, which included me as the economist. While I will reserve judgement until the final two-parts have been aired, my initial gut reaction is disappointing. The main problem I see with it so far is the ABC has inferred
By Leith van Onselen Just a fortnight after the Grattan Institute released propaganda claiming “Australia’s urban commuters have little to fear from population growth”, that “migration has not brought cities to a standstill”, and that the impact of population growth is “benign”, the truth has been revealed yet again, with the Australian Automobile Association (AAA)
I never thought I’d say this, but The ABC might actually do justice to the population debate after Four Corners’ recent heavily biased special (which featured a swathe of pro-‘Big Australia’ spruikers like Bernard Salt, Innes Willox, Liz Allen and Peter McDonald). Tonight, ABC 7.30 Report will air part-one of a three part special, which
By Leith van Onselen After planning expert, Irene Duckett, last week labelled Hobart’s population boom a “runaway train” with health services and roads struggling to cope with the increasing demand, a new report into Australia’s road congestion from the Australian Automobile Association (AAA) has found Hobart is the fourth-most congested capital in Australia: RACT general manager
