MB often works with international hedge funds on the Aussie economy. I recall the reaction of one from the US when he discovered that, unlike US fixed rate mortgages, Australian mortgages are all floating rate. He declared immediately: “Households must all pray for the next recession!” Why? Because that meant cheaper repayments for the overwhelming
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.
For years, MB has highlighted the deep flaws in Australia’s purported ‘skilled’ visa system, which accounts for around two-thirds of Australia’s planned migrant intake: Our concerns has been based upon three main flaws, specifically: The overwhelming majority of migrants under the skilled stream are not actually skilled; Those that have arrived in Australia have overwhelmingly
Wage theft from international students has been an enduring theme across the Australian economy over times. Earlier this year, Alan Fels – the chair of the Migrant Workers Taskforce – described wage theft as “widespread and systematic”, and estimated that one-third of international students are being underpaid, typically by migrant employers of the same nationality:
Here we go, via AFR: Australian smelters are struggling under high power costs and weak aluminium prices, and their reliance on fossil fuels is also becoming a competitive disadvantage, with Alcoa signalling that reducing its carbon footprint was an important goal of the “review” under way into almost half its global smelting fleet. …Federal Education
There are few greater proponents of the mass immigration economic model than David Crowe at Domain. At least, there were. He used to defend it at every turn. Produced ridiculous propaganda. And declared it was impossible to cut. Not any more. Today Crowe finally saw what MB has seen for many years. That mass immigration
Labor has attracted scorn from union leaders after the party’s caucus voted to support the federal government’s proposed free-trade agreements (FTAs) with Indonesia, Hong Kong and Peru. Construction, Forestry, Maritime, Mining & Energy Union national secretary Michael O’Connor says the decision will cause ongoing tensions between sections of the union movement and Labor. From The
According to the latest official figures, around 709,000 people are currently unemployed in Australia. However, Jim Stanford from the Centre for Future Work suggests that the unemployment rate could be as high as 19.7 per cent if both the underemployed and the ‘marginally attached’ are taken into account. The underemployed are those people who are
The ABC has published a detailed report on how rabid population growth is wrecking liveability across the Gold Coast: The Gold Coast may just be the urban equivalent of human growth serum. Over the next two decades, development there will be fuelled by an expected population boom of 350,000 people — more than half of
Over the June quarter, Australia’s household debt hit a record high 191% of household disposable income, after roughly tripling since the late-1980s: The latest Bank for International Settlements (BIS) global household debt data also confirmed that Australia has the second highest debt load in the world behind Switzerland, as well as the second highest average
Yesterday’s ABS labour force release for August revealed a mixed Australian youth labour market – i.e. those aged 15 to 24 years old – with falling unemployment offset by a record rise in underemployment. The trend headline unemployment rate fell slightly to 11.70% in September: Total employment growth for those aged 15-24 years was dead
The tax cuts are clearly doing bugger all, entirely predictably, so what’s the answer to a flagging economy? More of the same of course! Via AFR: Labor, had it won, would have offered an income tax cut for people earning up to around $120,000 but would not have proceeded with the Coalition’s stage two and
Australia is commonly regarded as running one of the world’s best ‘skilled-based’ immigration programs. This view is based on the fact that the ‘skilled stream’ comprises around two-thirds of Australia’s non-humanitarian permanent migrant intake, as illustrated in the next chart: MB has consistently challenged this view on a number of grounds. First, while around two-thirds
A new study from the International Education Association of Australia (IEAA) has found that a large share of international students on subclass 485 (graduate) visas are struggling to find meaningful employment, with 22% not working and many more performing low-paid, unskilled work. The study also found that the income profiles of these temporary graduate visa
Let us recall where it all started. The Harvard Kennedy School’s Center for International Development has developed an Atlas of Economic Complexity, with Australia being ranked as having one of the least complex economies. The Atlas measures the diversity and sophistication of national exports, with almost all of Australia’s exports not requiring a degree to
From perhaps Australia’s greatest ever economic hypocrite, via Domain today: Former treasurer Peter Costello has blamed ultra-low interest rates for fuelling global political extremism and accused the Reserve Bank of focusing on global currency movements rather than the Australian economy when setting monetary policy. Speaking at the Citi Australia and New Zealand Investment Conference 2019
As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for September, which registered a 14,700 increase in total employment and a decrease in the headline unemployment rate (from 5.3% to 5.2%) due to a 0.07% decrease in labour force participation. In trend terms, the unemployment rate was steady at
The ABS is out with September Labour Force and the news is decent: SEPTEMBER KEY POINTS TREND ESTIMATES Employment increased by 20,200 to 12,942,800 people. Full-time employment increased by 9,000 to 8,840,200 people and part-time employment increased by 11,300 to 4,102,600 people. Unemployment increased by 1,600 to 718,000 people. Unemployment rate remained steady at 5.3%.
Via SEEK: “We are seeing a slight improvement in the market with the rate of job ad decline moderating, with September at -7.4% compared to August, which was -8.6%. Month to month we continue to see growth come from the large employing sectors of Community Services and Development which has seen a jump from 13%
Yeh, they’re onto it at last. Deputy Governor Guy Debelle today: The housing market has a pervasive impact on the Australian economy. It is the popular topic of any number of conversations around barbeques and dinner tables. It generates reams of newspaper stories and reality TV shows. You could be forgiven for thinking that the
L-plate Treasurer Josh Recessionberg continues down his self-destructive path today. Via the AFR: In an interview with The Australian Financial Review before flying to an International Monetary Fund meeting in Washington DC, Treasurer Josh Frydenberg said restoring the budget to surplus was not a vanity exercise but integral to the government’s plan to buttress the
In recent years, India has been the marginal driver of Australia’s international student enrolments, taking over the growth mantle from China. Over the past two financial years, Indian international student enrolments surged by 39,600 (62%), easily eclipsing the 34,100 (20%) growth in Chinese international students over the same period: It is a similar situation with
The Australian Bureau of Statistics on Tuesday released its overseas short-term arrivals and departures figures for August. The number of short-term visitor arrivals rose by 6.4% in the year to August, whereas short-term resident departures only rose by 0.7%. The ratio of annual arrivals to departures also rose to 81.5%: That said, net short-term arrivals
The Australia Institute’s Maryanne Slattery has hit out at the new found push to build dams across regional Australia to alleviate drought, arguing that it would be both costly and pointless given there will not be enough rain to fill them due to climate change: …if new dams can solve Australia’s water problems, why didn’t
Anglicare has released a report which shows that there are 5.5 people competing for every entry-level job position. From The Guardian: Australia’s most disadvantaged jobseekers are forced to compete against growing numbers of underemployed people for a dwindling number of suitable jobs, a report has found… Anglicare’s Annual Jobs Availability Snapshot, released on Wednesday, found
The World Economic Forum just posted its most recent Global Competitiveness index. I don’t agree with some of the underlying measurements, but I find the depth and transparency into their process excellent – if you are wondering how they got to a score then the answer is probably available. Very useful when looking at which
The Minister for Population, Cities and Urban Infrastructure, Alan Tudge, appeared on Peta Credlin’s Sky News program, whereby he played down angst over Australia’s ballooning population by claiming that Australia’s population growth rate is currently 1.6%, “the average since federation”. Technically, Tudge is correct in his claim, as illustrated in the next chart: However, by
Via CBA today: Australia’s key commodity prices to ease from here ■ We see Australia’s key commodity prices moving lower from here. ■ But despite lower commodity prices, Australia’s external sector should have another good year as export volumes continue to lift and the lower Australian dollar boosts our competitiveness. ■ An expected decline in
Via Westpac: The growth rate is now materially below trend and is signalling that growth through the first half of 2020 is likely to remain below trend. That profile is broadly consistent with Westpac’s forecasts which have growth in the first half of 2020 at an annualised pace of 2.4% consistent with the overall growth
Via The Australian: Australian fund managers have sent a strong signal to private equity players about the quality of companies looking to list on the ASX, after Latitude Financial failed to secure enough support for its $3.2bn IPO in what was to be the largest float of the year. The IPO for the non-bank lender