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.


Victoria’s ponzi sinkhole economy exposed

By Leith van Onselen You’ve gotta wonder about the economic literacy of the Victorian Government. After the ABS released the state accounts for the year ended June 2017 on Friday, Victoria’s Treasurer Tim Pallas, released the following baloney trumpeting the result: Victoria’s economy leads the nation with gross state product for 2016-17 growing 3.3 per


Future Fund conducts last rites for Australian economy

At the AFR of all places: High appetite for risk has created a “speculative euphoria”, says former prime minister Paul Keating, who argues that markets are vulnerable to a correction that nobody is prepared for. “No-one’s running for the door, and also right now, no-one knows where inflation is or when it might spring back.


Chinese tourist arrivals hit new record

By Leith van Onselen The Australian Bureau of Statistics yesterday released its overseas short-term arrivals and departures figures for September, which continued to show a trend rise in the number of inbound tourists, with Chinese arrivals continuing to boom. The number of short-term visitor arrivals fell 5.6% in September in original terms, whereas short-term resident


Pascoe declares war on self, Gittins over immigration

Weeo, weeoo, weeoo. The Pascometer is back and immigration is his victim today: Even liberal commentators such as Ross Gittins are worried about our scarce physical capital being stretched rather than deepened. Ms Ellis immediately acknowledged the thing that concerns such voices Mr Gittins: “Of course, just adding more people and growing the economy to keep pace wouldn’t boost


Long-term arrivals into Australia hit another record high

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released visitor arrivals and departures data for the month of September, which registered another lift in annual permanent and long-term arrivals, which have hit record high levels. In the year to September 2017, there were a record high 777,440 permanent and long-term arrivals into


Food industry abandons penalty rate cuts

Via the AFR: The restaurant and cafe industry has dropped its bid to cut Sunday penalty rates after failing to provide evidence that the cuts would create jobs. The employer group Restaurant and Catering Industrial was due to be heard in the Fair Work Commission on Thursday over its application to cut rates from 150


Can Australia’s private debt rocket reach Denmark peaks?

Via LFEconomics: In the post-GFC era, more attention has been given to private credit (debt) whereas previously, almost all commentary focused upon public debt. The ruptures caused by the global financial crisis (GFC) is strongly responsible for this shift in perspective, including the research by heterodox economists. Fortunately, the mass media in Australia have done a


ABS employment in detail: Botox boom rolls on

By Leith van Onselen As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for October, which registered a soft 3,700 increase in total employment and a 0.1% decline in the headline unemployment rate to 5.4%. In trend terms, the unemployment rate fell marginally from 5.48% to 5.45% – the


Jobs boom ends, Australian dollar rises!

The ABS has released October Labour Force and the news is mixed: SEASONALLY ADJUSTED ESTIMATES (MONTHLY CHANGE)  Employment increased 3,700 to 12,297,100. Full-time employment increased 24,300 to 8,425,400 and part-time employment decreased 20,700 to 3,871,700. Unemployment decreased 8,100 to 701,500. The number of unemployed persons looking for full-time work remained steady at 485,900 and the number


Pink dollar unleashed, who cares

From Jess Irvine: Florists, photographers and wedding celebrants are among the army of small businesses set to enjoy a billion-dollar plus boost when tens of thousands of same sex couples are finally allowed to walk down the aisle. According to ANZ senior economist Cherelle Murphy, the economic benefits of marriage equality related to weddings alone


Luci Ellis rings the bell at the top of Australia’s ponzi-growth model

By Leith van Onselen RBA Assistant Governor, Luci Ellis, game a speech last night where she played down concerns over where Australia’s future growth would come from: As the mining investment boom turned down, and became a drag on growth, the question was often asked: ‘Where is the growth going to come from?’ Commentators started


Why consumer and business sentiment has wildly diverged

By Leith van Onselen This week, we have experienced a strange phenomenon. On Tuesday, the NAB’s business survey reported that business conditions are running at their strongest level since monthly records began in 1997, whereas business confidence remained above the long-run average level. By contrast, yesterday’s Westpac’s consumer sentiment survey revealed that consumers remain dour,


Wages growth disappoints, shatters Budget’s forecast

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released its Wage Price Index for the September quarter of 2017, which revealed a continuation of weak wages growth across the economy: According to the ABS, wages grew by 0.48% (both s.a. and trend) in the September quarter, well below economists’ expectations of


Consumer sentiment slumps, Xmas plans dire

Via Westpac: • The Westpac Melbourne Institute Index of Consumer Sentiment declined 1.7% to 99.7 in November from 101.4 in October. Last month’s return to slight optimism has proven to be short-lived. While the Index is still up 4.4% from its August low, the November decline takes it back below 100, indicating pessimists again outnumber


Degree quantitative easing drives up university drop-out rates

By Leith van Onselen Last year, The Australian revealed that drop-out rates for first year university students had hit an all-time high one-in-five, with the Grattan Institute’s higher education policy expert, Andrew ­Norton, claiming there was a correlation between drop-out rates and increasing enrollments, particularly among low-Australian Tertiary Admission Rank (ATAR) students. Then in June,


Older workers, not immigration, is key to overcoming ‘labour shortages’

By Leith van Onselen Economist Callam Pickering has published some more interesting analysis showing that while Australia’s population is ageing, there are a rising number of older Australians working that mitigates this impact: Australia’s population is getting older, putting downward pressure on economic growth and labour force participation—the proportion of the civilian adult population holding


Why has the NAB survey gone screwy?

Via Westpac: • The NAB business survey for October was positive, with the business conditions index jumping 7pts to +21, a new all time high. Trading conditions and profitability rose, while employment conditions were unchanged at +8. Business confidence was also unchanged at +8, a reading a little above average. The survey was conducted from


Freelancer CEO Matt Barrie goes nuclear on Australian meltdown

Freelancer CEO Matt Barrie and Craig Tindale have gone nuclear on a coming Australian meltdown today at LinkedIn. The entire article is reproduced below if you have a spare two days. I recently watched the federal treasurer, Scott Morrison, proudly proclaim that Australia was in “surprisingly good shape”. Indeed, Australia has just snatched the world


NAB business survey loses touch with reality

From the increasingly perverse NAB business survey: Australia’s business sector appears to have enjoyed highly favourable business conditions in October, continuing the long-run of solid outcomes in NAB’s Monthly Business Survey. The Survey showed that business conditions hit a high of +21 index points in October, up +7 points from September and the highest level


Australia’s increasingly worthless university degrees

By Leith van Onselen The Australian’s Judith Sloan has joined the conga line hitting out at Australia’s demand-driven university system: It’s called degree inflation in the US but we tend to use the term credentialism. It refers to the phenomenon in which jobs once filled by non-graduates increasingly are filled by graduates. In the case of the