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.


Fair Work: One in five businesses busted for wage theft

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


Reject shop stores to close as consumers shut wallets

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


NSW towns facing “water emergency”

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:


Are dodgy agents behind Australia’s international student corruption?

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


Construction bust casts dark cloud over economy

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


Academics face retribution over international student claims

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


Australian construction activity fell again in Q1

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


Aussie leading index sinks

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


Motorists gouged by escalating toll road charges

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:


Manufacturing should leave Australia

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


Australia has nothing to fear from population ageing

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,


Will Trump’s China trade war kill the international student trade?

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,


Dr Cameron Murray busts economic ageing myths

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.


Sydney’s migrant-stuffed west to be painted with high-rise

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.


60% of migrants “fleeing” Aussie regions for cities

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


Youth labour market hits the skids

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