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.

46

Jacinda Adern rejects Trans-Tasman travel bubble

Yesterday, Australian Chamber of Commerce and Industry released a plan to implement a trans-Tasman travel bubble in an effort to resuscitate the tourism sector. The plan proposed using a Canberra to Wellington route as a test path with politicians, business industry leaders and journalists first passengers on initial flights to ensure its safety before being

28

Manchurian Dan: Taxpayers to fund return of international students

After subjecting Victorians to months of draconian lockdowns, and issuing individuals $1600 fines for minor technical breaches of social distancing rules, Victorian Premier Daniel Andrews wants to rush back international students with their quarantine paid for by taxpayers: Victorian Premier Daniel Andrews has spoken on how to get “international education back on its feet,” arguing

2

Roy Morgan: 14.8% of Aussies unemployed in May

Roy Morgan Research has released its unemployment estimate for May, which has shown a massive increase in unemployment since the COVID-19 lockdown commenced in mid-March, but also a slight moderation in May: In May 14.8% of the workforce (2.09 million Australians) were unemployed. This is down 69,000 on April as Australia begins to open up

7

Australian households’ nine year income recession

The March quarter national accounts, released on Wednesday, was another shocker for Australian households. As already reported, real average compensation per employee declined by 0.8% in the March quarter and is now 3.5% lower than March 2012: Yesterday, the Reserve Bank of Australia’s released further data, derived from the national accounts, showing that real per

2

Australia’s international trade plunged in April

The Australian Bureau of Statistics (ABS) today released trade data for the month of April, which has registered solid falls in both imports and exports: In seasonally adjusted terms, goods and services credits [exports] fell $4,756m (11%) to $37,505m. Non-rural goods fell $2,192m (8%) and non-monetary gold fell $1,694m (47%). Rural goods rose $39m (1%)

3

Retail sales collapsed 18% in April

The ABS has released its official retail sales data, which registered a record decline of 17.7%, which follows March’s record 8.5% rise on the back of grocery hoarding: In annual terms, retail sales dived by 9.2%: According to the ABS: The following industries fell in seasonally adjusted terms in April 2020: Food retailing (-17.4%), Cafes,

30

How Nev Power rolls

Nev Power has taken to central planning like a miner to iron ore: The National COVID-19 Coordination Commission has detailed priority manufacturing sectors it would like to see developed and expanded without government assistance to the Senate’s COVID-19 Committee. NCCC chair Nev Power said the commission’s manufacturing task force wants to enhance energy intensive manufacturing,

11

Credit Suisse: Housing stimulus “small”

Via Damien Boey at Credit Suisse: Small housing stimulus package. The Federal government is launching a new $688 million housing stimulus package. Selected owner-occupiers looking to build or renovate in 2H 2020 will be able to get a $25K grant from the government. To be eligible, home buyers need to be owner-occupiers rather than investors. They

9

New car sales plunge for 26th straight month

The Federal Chamber of Automotive Industries (FCAI) has released its new car sales report for April, which saw annual car sales collapse to their lowest level since February 2010: It was the 26th consecutive month of decline, with annual new car sales now running 20% below their March 2018 peak. According to FCAI: Across the

2

Seek job ads show more improvement

Seek has released its job ads report for the week ended 31 May 2020, which shows further improvement: Key insights (weeks 21 & 22 compared to April 2020): New job ads posted on SEEK during the fortnight ended 31 May are up 49.2%. This is a further uplift from 26.8% and 39.7% in previous two

7

The long, slow death of the Australian consumer

Yesterday’s national accounts data for the March quarter, which preceded the COVID-19 shutdown, confirmed that the Australian consumer is dead. As shown in the next chart, real household consumption fell by 0.24% in the year to March 2020, which was the biggest fall since 1961: In per capita terms, household consumption fell by 1.7%, which

36

Long queues at CentreLink to resume next week

One of the most enduring images from the COVID-19 lockdown was the long queues outside CentreLink as newly made unemployed Australians breached social distancing to obtain financial assistance. We risk repeating these scenes again with mutual obligation requirements beginning next week for welfare recipients, including those sacked during the coronavirus pandemic: There are fears Australia’s

14

Salvatore Babones: COVID-19 was the crisis that Australia didn’t have to have

Associate Professor Salvatore Babones has released a new paper at the Centre for International Studies (CIS), entitled “The 12-Week Window: Coronavirus crisis Australia didn’t have to have”. The paper argues that the federal government acted far too late in closing Australia’s international border, in turn resulting in a harder economic lockdown than would otherwise have been

9

Dole numbers explode

Via Domain: The number of Australians receiving the JobSeeker payment rose by 300,000 in a month to hit 1.64 million people on May 22, with a further 45,000 claims outstanding, the Senate inquiry into the government’s response to COVID-19 has heard. The Department of Social Services has previously estimated that 1.7 million people would seek

13

Aussie wages were in recession long before COVID-19

The March quarter Business Indicators report was released by the ABS yesterday, which includes aggregate wages & salaries data, namely “gross earnings before taxation and other deductions” and “includes provisions for employee entitlements”. In order to get a better sense of how Australian workers have fared, I have deflated this aggregate nominal wages & salaries

11

CBA: Q1 GDP to fall 0.3%

CBA’s head of Australian economics, Gareth Aird, forecasts that tomorrow’s March quarter GDP will fall by 0.3%: Key Points: We expect Q1 real GDP to contract by 0.3%. Annual growth, revisions aside, should dip to 1.4%. Household consumption, dwelling investment and business investment are all expected to fall inQ1. Public investment and net exports will

36

NBN goes ‘back to the future’ with copper rollout

One of the biggest knocks against the Coalition’s National Broadband Network (NBN) is that it in many neighbourhoods, it chose to stick with the old copper network instead of fibre optic networks. While this decision saved money in the short-term, it also has limited the NBN’s speeds, as well as reduced its reliability. Strangely, the

15

Economists reject return to mass immigration ‘Ponzi’ economy

Martin North and I were interviewed last week by the Daily Mail’s Alison Beverage, where we both rejected the notion of returning the Australian economy to its pre-COVID-19 “Ponzi” state: Australia had become too dependent on housing construction fuelled by a giant mortgage debt bubble and unsustainable mass migration… Economist Martin North said the time

1

Lies, damned lies, and PMIs

Via FTAlphaville comes a point I’ve been making repeatedly myself: The purchasing managers’ indices are among the world’s most closely watched economic indicators, moving markets and provoking policymakers to act. And with good reason. The polls — most of which are compiled by data firm IHS Markit — offer an early sign of how well,