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.


Aussie CPI surges as expected

The ABS has released Q2 CPI data, which shows that inflation rose by 0.8% over the quarter and by 3.8% over the year – basically in line with analyst’s expectations of a 0.7% quarterly increase and a 3.8% rise year-on-year. The large annual increase in CPI was driven by the ‘base effect’, since CPI fell


NSW records another 177 COVID cases

NSW Health has recorded another 177 locally acquired COVID cases over the past 24 hours: NSW recorded 177 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night. — NSW Health (@NSWHealth) July 28, 2021 Of these locally acquired cases, 74 are linked to a known case or cluster –


CPI preview

CPI preview for later today. Westpac with the note: •Westpac’s forecast for the Q2 CPI is 0.9% which, with base effects from the Covid hit last year, will lift the annual rate to 4.0%yr from 1.1%. •The trimmed mean forecast is 0.5%qtr lifting the annual rate lift from 1.1%yr to 1.6%yr. The six-month annualised pace


Consumer confidence locked down

ANZ weekly consumer confidence locked down: ANZ-Roy Morgan Aus Consumer Confidence: Last week confidence fell 3.5% to its lowest since Nov 2020, but it is still well above the early pandemic lows, suggesting the economic hit from these lockdowns will be less than in Q2 2020. #ausecon #ausretail @arindam_chky @DavidPlank12 — ANZ_Research (@ANZ_Research) July


Australian policy reform ‘gridlocked’ by soft corruption

The Grattan Institute has released a new report entitled “Gridlock: Removing barriers to policy reform”, which argues that Australia’s prosperity is at risk from a decade-plus of decay across our political institutions. Below is the Overview, combined with some key graphics: Australia’s governance has deteriorated over recent decades. The formal institutions and the informal norms


Coalition under extreme pressure to reinstate JobKeeper

The NSW government will formally request the federal government reinstate the JobKeeper wage subsidy scheme, amid expectations that the COVID-19 lockdown of Greater Sydney will be extended for at least another month. The state government is also believed to have sought financial modelling on a number of scenarios, including extending the lockdown until 17 September:


NSW records another 145 COVID cases

NSW Health has just reported another 145 locally acquired COVID-19 cases over the past 24 hours: NSW recorded 145 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night. — NSW Health (@NSWHealth) July 26, 2021 Of these locally acquired cases, 66 are linked to a known case or cluster,


Victoria to reopen after COVID cases successfully quarantined

Victoria’s Department of Health has recorded another 11 locally acquired COVID cases over the past 24 hours; however all were already in isolation throughout their infection period: Reported yesterday: 11 new local cases and 1 new case acquired overseas (currently in HQ). – 13,953 vaccine doses were administered – 25,404 test results were received More


Job postings unaffected by lockdowns

Callam Pickering, economist at global jobs site Indeed, has released new data showing that, as of last Friday, Sydney’s and Melbourne’s lockdowns had minimal impact on Job Postings; although Pickering expects the situation to change as lockdowns drag on: As of last Friday, there has been minimal impact on job postings from the lockdowns in


NSW records new high 136 COVID cases

NSW Health has reported another 136 local COVID cases over the past 24 hours: NSW recorded 136 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night. — NSW Health (@NSWHealth) July 23, 2021 Of these locally acquired cases, 77 are linked to a known case or cluster – 65


Payrolls slump into Morrison’s recession

Farewell stellar jobs recovery. Via the ABS: In the fortnight up to the week ending 3 July 2021: Payroll jobs decreased by 1.0%, compared to an increase of 0.4% in the previous fortnight All states fell: OMG it’s a blue recession! Kids always do worst, earliest: Payrolls are not seasonally adjusted so that’s why the ABS is cautious. But,


CBA: COVID uncertainty clouds economy

By Gareth Aird, head of Australian economics at CBA The level of uncertainty over economic outcomes in the near term has further increased over the past week because of additional lockdowns around the country, lockdown extensions and a tightening of restrictions in Greater Sydney. The absence of any downward trend in the number of daily


Victoria records another 26 COVID cases

Victoria recorded another 26 locally acquired COVID cases over the past 24 hours: Reported yesterday: 26 new local cases and 2 new cases acquired overseas (currently in HQ). – 14,230 vaccine doses were administered – 43,674 test results were received More later: #COVID19VicData — VicGovDH (@VicGovDH) July 21, 2021 The good news is


Robert Half: Immigration collapse driving wages higher

Recruiters Robert Half Australia are reporting a tighter labour market and higher wage offers thanks to the collapse in immigration: Covid is rewriting the job descriptions – and the salaries – of many employees in finance and accounting, technology, business support and marketing areas, according to a report from recruiters Robert Half Australia… The firm’s


Delta strain may require 90% vaccination rates

Professor Catherine Bennett of Deakin University has suggested that state governments may be able to control localised COVID-19 outbreaks without imposing lockdowns when at least 30% of Australians have been fully vaccinated. However, Raina MacIntyre from the Sydney-based Kirby Institute says its research shows that this level of full vaccination would not be sufficient. She


Privatised job agencies get rich off unemployed suffering

In the late 1990s, Australia privatised the system that helps the unemployed find work. The idea was that by paying employment service providers for each person they placed into a job, the process would become more efficient. Instead, a parasitic industry developed with around 40 privately run employment agencies earning millions in fees from the