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 The Australian Bureau of Statistics yesterday released its overseas short-term arrivals and departures figures for January, 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 dived by a seasonal 30.9%
Via Credit Suisse: The price of Australian thermal coal sold to China (5500kcal high-ash) is being hit relative to competitors, at odds with assurances by the Chinese and Australian Governments that there is no ban on Australian coal at China ports. Whether there is a ban or just restrictions, the price suggests importers are not
By Leith van Onselen Economist Callam Pickering has provided the ABC with great analysis explaining why younger Australians have been left behind over the past decade, shunted into part-time employment: 1.85 million new jobs were created between 2008 and 2018… All of which is great news, unless you are a young worker looking for full-time
Via Westpac: Total employment lifted a solid 39.1k in January, well clear of the market median of 15k. The year started with a solid trend pace of employment growth with a three month average gain of 31.9k. While it is just one month into the year, employment has gained 271k in the year to January
By Leith van Onselen From mid-2018, new car sales across Australia nose-dived on the back of the housing crash, with Victoria (-11.7%), New South Wales (-11.0%) and Western Australia (-8.3%) – i.e. the markets where house prices are crashing – recording the biggest year-on-year falls in new car sales: Now, Roy Morgan Research has released
The wages war rages on with more good material from the suddenly less Fake Left over the weekend. Mike Seccombe at The Saturday Paper: Back then Tony Abbott’s chosen employment spokesman, Eric Abetz, led the scare campaign, doing his very best to talk up the threat of an economy-wrecking wages breakout. He was never clearer than
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released visitor arrivals and departures data for the month of January, which posted record annual permanent and long-term arrivals. In the year to January 2019, there were 835,310 permanent and long-term arrivals into Australia – up 6% from January 2018 and an all-time high.
More good work from Bernard Keane at Crikey today: If the wage denialists in business, the government and at the Financial Review are going to make the case that there’s no need for action on wage stagnation, they’re going to have to do a little bit better than rehashing the claim that minimum wage rises — as
Let’s do a little roundup of today’s economic pet shop starting with some terrible analysis from Deloitte at the New Daily: “Some downturns are big, and some are small,” said Geoff White, head of real estate at CoreLogic. “Usually, it’s driven by economic conditions, but in this case it’s more about credit. …During the GFC,
By Leith van Onselen MB has frequently questioned the efficacy of Sydney’s WestConnex toll road and tunnel project – the $17 billion 33 kilometre motorway under construction that is more expensive per kilometre than the Chanel Tunnel. This hideously expensive project will see existing free public roads like the state-owned M4 (that have already been paid
By Leith van Onselen The ABS released interesting household formation projections yesterday, which forecast a 50% increase in the number of households across Australia’s capital cities in the 25 years to 2042: As shown above, Melbourne is projected to lead household formation with a 63% increase; although it will be strong across the board with
Get a load of this data dump from Martin North on household attitudes to property: We have released the latest edition of our household surveys, looking specifically their attitude to property transactions and expectations. And overall demand, and intention to transact have tanked. More evidence of a weaker market ahead. Intention to transact continues to
We always love the work of Freelance CEO Matt Barrie not least because he often uses MB charts: Australia’s property market enjoyed a golden run for years on end — but according to one Aussie CEO, those days are now gone for good. He said the combination of our weakened housing market coupled with global market
By Leith van Onselen Restaurant & Catering Australia CEO, Juliana Payne, has demanded no increase in the minimum wage in 2019 due to the above-inflation increases of recent years. From The Australian: Restaurant and cafe owners have called for a minimum wage freeze, declaring that the Fair Work Commission should impose a real wage cut
By Leith van Onselen While The Economist’s fraudulent ‘Most Livable City’ index ranks Melbourne the second most liveable city in the world, the 2019 Mercer Quality of Living Index has been released, which has Melbourne sliding to 17th place and no Australian city ranked in the top-10: The rankings of Australia’s capitals are as follows (Hobart and
By Leith van Onselen The latest Roy Morgan Research (RMR) unemployment estimate for February rose 0.4% to 9.6%, but was down 0.1% over the year: Below are the key points from the release: The workforce, which comprises employed Australians and those who are unemployed and looking for work, is now 13,466,000, down 72,000 on a
Let’s kick off with David Scutt at BI: The responses in the latest [consumer sentiment] survey indicate that Australians are now more risk averse when it comes to their investment decisions — or scared — than what they were during the height of the GFC. That’s fairly remarkable given Australia just notched up its 28th
Via Domain: If Labor succeeds in securing an $852-a-week “living wage”, Australia could overtake France and Luxembourg to become the nation with the highest minimum wage. It is currently ranked third based on the latest OECD data, which is adjusted for purchasing power. Deloitte Access economist Chris Richardson said Australia was already near the top
By Leith van Onselen The South Australian Liberals have taken a cue from their federal counterparts, opening two new pathways for businesses to exploit cheap foreign labour. From Adelaide Now: The new visa rules, being trialled by the State Government, will make it easier for overseas migrants wanting to join extended family in SA by
Via Westpac: The Westpac-Melbourne Institute Index of Consumer Sentiment fell 4.8% to 98.8 in March from 103.8 in February. The consumer mood deteriorated in March, sentiment falling to its lowest level since September 2017. With the index moving back below 100, pessimists again outnumber optimists. That contrasts with the ‘cautiously optimistic’ reads that prevailed throughout
By Leith van Onselen Life is hard for the senior bank economist. CBA chieftain, Michael Blythe, is the latest to hose claims that Australia is experiencing a per capita recession. From The Australian: “If this is a recession, then it is one of the strangest I’ve seen in my 36 years following the Australia economy,”
Via Domain today, the former “independent always” turned immigration-dependent real estate listings firm: Chief executives of some of Australia’s biggest companies have thrown their support behind the nation’s immigration program, saying it is crucial for bringing in the skilled workers they need and underpins economic growth. With the federal government expected to cut the immigration intake
Via The Australian today: Bill Shorten has launched a fresh assault in his war on business, branding employers as “fat cats” for criticising Labor’s wages policy and threatening to impose once-in-a-generation changes that would force the industrial umpire to deliver bigger pay rises to 2.3 million workers. Arguing that the principles behind setting the minimum
By Leith van Onselen Some good work by The Guardian’s Greg Jericho today, who has produced some useful charts showing how living standards have declined under the Abbott/Turnbull/Morrison Governments: Over the past five years, while national income has again risen and fallen with our terms of trade, household incomes peaked in March 2015 and have
From our Bill today comes confirmation that he will change the rules at the Fair Work Commission to force wage hikes: “There’s a range of ways which governments can put the case to the Fair Work Commission. They can make submissions in the minimum wage case. We don’t want adults in Australia working full time trying
The Aussie data just keeps getting worse. The NAB February business survey was poor again: Check out the internals with confidence and conditions sinking: Leading indicators like forward orders and capex crashed with capacity utilisation: More on the last: There goes inflation and wages growth! The only sliver lining was employment still holding a good
I guess a per capita recession matters after all as ANZ weekly consumer confidence plunges 5%: “We think the soft GDP report and, perhaps more importantly, the focus on a “per capita recession” were the primary factors in the plunge.” “This decline could be longer-lasting as it appears to be more related to underlying economic
By Leith van Onselen Economist Declan Trott refutes suggestions that labour’s share of income has declined, arguing that it remained at around its long-term average in 2016. Trott, who has previously worked for the Department of Jobs & Small Business, has analysed data on workers’ share of income between 1960 and 2015-16. He notes that
By Leith van Onselen Facing imminent election defeat, the Morrison Government has thrown open the immigration floodgates via a variety of new visa pathways. In December, the Morrison Government announced a brand new permanent migration pathway for low skilled, low paid, non-English speaking foreign workers: The Government has opened a gateway for foreigners with basic
By Leith van Onselen Last week’s national accounts release for the December quarter confirmed that Australia’s FIRE economy – Finance, Insurance and Rental, Hiring & Real Estate Services – continues bleeding its host, with its share of the Australian economy rebounding to an equal record high 11.8%: Since financial markets were first deregulated in the
