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.


MB Radio: Irresponsibility becomes the new black

Ahead of the anticipated announcement of the Federal Governments trashing of responsible lending laws by moving oversight of financial lending from ASIC to APRA, Gunnamatta spoke with David Llewellyn-Smith and Leith van Onselen about the implications of the move, and how this positions the Australian economy.  The sound is a touch raw, and the discussion


400,000 Aussies face losing JobSeeker access

As we all know, the JobSeeker supplement (alongside JobKeeper) will be cut this weekend from $1100 to $815. There is widespread concern that the wind back of the JobSeeker supplement will push many Australians into poverty, as well as pull billions of dollars out of the economy. For example, Deloitte this month forecast that scrapping


Tens of thousands of businesses face collapse

Yesterday, Treasurer Josh Frydenberg announced the introduction of US-style Chapter 11 bankruptcy rules, which would cover around 76% cent of businesses subject to insolvencies, 98% of whom have less than 20 employees: The new system would be two-tiered, with large companies required to work under existing insolvency rules, while business with liabilities of less than


Victoria COVID-19 infections trend lower

Victoria recorded only 14 new COVID-19 infections and 8 deaths: Infections continue to trend lower: Cases continue to fall below the thresholds required to ease draconian stage 4 restrictions in Melbourne: NSW recorded only four new cases with almost zero locally acquired:   And new case counts have plummeted across both jurisdictions: There are now


Which industries have been slaughtered by COVID-19?

The Australian Bureau of Statistics (ABS) yesterday released quarterly employment data to August 2020, which revealed that 421,900 jobs were regained over the quarter, with Accommodation & Food Services (129,500) leading the charge, followed by Retail Trade (59,600) Arts & recreation (+53,000), and Education (+52,800): However, in the year to August 2020, 368,600 jobs were


Taxpayers must not pay for international students return

The NSW Government has flagged a plan to bring back large numbers of international students for the beginning of the 2021 academic year: NSW Minister for Jobs, Investment and Tourism Stuart Ayres told an international education summit in Sydney on Wednesday that… he had learned “lots of lessons about how to house 60,000 people in


Australians to benefit as immigration turns negative

The ABS yesterday released demographic statistics for the March quarter of 2020, which reported that Australia’s population growth rate has fallen to 1.4% – a decade low: In number terms, Australia’s population grew by 357,000 in the year to March, driven by 220,500 net overseas migration (NOM): However, NOM remained well above the 38-year average


ABS: Working from home here to stay

The Australian Bureau of Statistics has released its Business Indicators, Business Impacts of COVID-19 survey, which suggests that the working from home (WFH) phenomenon is a permanent shift that will continue long after COVID-19: Employing businesses provided an estimate of the proportion of their workforce teleworking: prior to COVID-19; during September; and expected once restrictions


Productivity Commission: JobKeeper stifles economic recovery

Productivity Commission chairman Michael Brennan has called for the JobKeeper wage subsidy scheme to be phased out, arguing that it will stymie the recovery by encouraging workers to remain with their existing employer: “[JobKeeper] also creates a rigidity by tying existing workers to existing firms, and a time inevitably comes when that holds back the


Victorian and NSW COVID-19 infections crash

There’s more good news today, with Victoria’s COVID-19 infections falling to only 12 new COVID-19 infections and 2 deaths. The trend rate of new infections is falling fast: And Melbourne’s 14-day average infection rate has plummeted to 26.7 in the lead-up to Sunday’s easing of draconian Stage 4 restrictions: NSW recorded only one new infection,


Brace for JobKeeper “bloodbath”

Via News: Aussie employment relations expert Natasha Hawker, who told JobKeeper 2.0, which is now just days away, would leave employees and staff exposed to a redundancy “bloodbath”. …She predicted that would lead to a massive spike in redundancies – and with it, unfair dismissal claims. “For many businesses, especially smaller businesses for whom


Private schools demand quick return of international students

In 2016, the former Turnbull Government introduced a new visa class that enabled international students and their guardians access to Australian schools, along with the ability to buy property ahead of applying for permanent residency (see here, here and here). At the time of introduction, I labelled this visa “one of the worst policies that


Collective amnesia hits Melbourne hotel quarantine inquiry

Melbourne’s Hotel Quarantine Inquiry has turned into a circus with no party claiming responsibility for running the failed program, nor anybody providing information as to who made the decision to contract out management to untrained private security. As we know from earlier proceedings, both the Department of Jobs, Precincts and Regions (DJPR) and Chief Health


Work from home will test summer electricity grid

Energy Users Association of Australia has warned that the high proportion of people working from home (WFH) could place immense pressure on Australia’s electricity grids due to increased use of air conditioners: According to research company Roy Morgan, more than 4.3 million Australians are working from home as employees and employers continue to take a


Can domestic tourism fill the hole?

Earlier this month, the federal government released modelling showing the Australian tourism industry will lose $55 billion this year, thanks to COVID-19 and its associated restrictions and closures. That is, if states keep their borders closed and other restrictions continue. However, it’s not all bad news, with new data from Tourism Research Australia showing domestic


Retail sales tanked in August

Just in from the ABS: Key statistics The seasonally adjusted estimate fell 4.2% (-$1,276.3m) from July 2020 to August 2020. In seasonally adjusted terms, Australian turnover rose 6.9% in August 2020 compared with August 2019. This compares to an annual movement of 12.0% in July 2020. Victoria led the falls, down 12.6% compared to July


Victorian COVID-19 infections trend lower

Victoria recorded 15 new COVID-19 infections overnight, alongside 5 deaths. Cases continue to trend lower: And the 14-day average daily count in Melbourne has fallen below 30 to 29.4: NSW recorded 6 new infections, with almost no new local transmissions: Infection rates across both jurisdictions are collapsing: Victoria’s active case count has fallen to 620,


Shane Oliver: Australia can’t grow its way out of debt

AMP chief economist, Shane Oliver, has released research examining whether Australia’s “eye-popping” public debt can be paid-off via strong economic growth, as occurred in the post-War years. Oliver’s conclusion is that repeating the post-War experience is highly unlikely, meaning Australia will likely be saddled with a high debt load for decades to come. Key Points:


Flash PMI weak again

Via Markit (CBA no longer): Latest PMI data indicated a recovery in business activity across Australia at the end of the third quarter after containment measures were loosened in parts of the country. This followed a decline in August. The upturn was driven by a further rise in manufacturing output, while signs of stabilisation were


RBA Deputy Governor Debelle lists ‘other’ policy options.

From CBA’s head of Australian economics, Gareth Aird: RBA Deputy Governor Guy Debelle listed four ‘other’ options to ease monetary policy further: (i) purchase bonds further out on the curve (supplementing the three year yield target); (ii) foreign exchange intervention; (iii) cut the current structure of interest rates in the economy without going negative; and (iv) negative rates. Purchasing


Travel agents demand taxpayer bailout

The Australian Federation of Travel Agents has urged the federal and state governments to provide targeted assistance for the industry, which has been amongst the hardest hit by the COVID-19 pandemic. Travel agents qualify for financial hardship assistance if their turnover has fallen by 30%, but many have experienced a decline of 90% or more.


Property Council demands migrant meat for grinder

The mask has slipped and the reason Australia has had such high immigration rates has been revealed: The Property Council has called on the Federal Government to extend its successful HomeBuilder stimulus program for new housing construction for a further six months to July 2021. The Property Council has also recommended a ‘Welcome to Australia’


ABS: Payroll jobs still down 4.5% from pre-COVID level

The Australian Bureau of Statistics (ABS) has released its Weekly Payroll Jobs and Wages in Australia survey, which reveals that the number of payroll jobs remains 4.5% lower than pre-COVID levels, whereas total wages are down 4.3%: Key statistics Between the week ending 14 March 2020 (the week Australia recorded its 100th confirmed COVID-19 case) and


Gottiboff: Death taxes would sap first home buyer confidence

Historically low interest rates and government incentives are prompting more first-home buyers (FHBs) to enter the housing market. However, according to Robert Gottliebsen, renewed talk of reintroducing death taxes will sap the confidence of FHBs: After lying dormant for many years, death taxes are suddenly re-entering the speculative arena. And so to treasurer Josh Frydenberg


Victorian COVID-19 infections rebound

Victoria recorded 28 new COVID-19 infections overnight, a significant rebound from yesterday’s multi-month low of 11. However, it recorded only 3 deaths.   The 14-day trend, which is what the Victorian Government is looking at in order to ease Melbourne’s restrictions, has fallen to 32.8: NSW recorded only 2 new COVID-19 infections, with the trend