Stephen Koukoulas (“The Kouk”) is the latest in a growing list of economists to acknowledge that the closure of Australia’s international border to migrants will soon generate enough labour market tightness to drive decent wage growth: It’s good news for the economy – Australia is entering a period of accelerating wages growth… A hectic schedule
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 Gareth Aird, Head of Australian Economics at CBA Key Points: The 2021/22 Australian Budget is scheduled for release at 7.30pm (AEST) 11 May. The Budget bottom line will be greatly improved because of the much better performing economy and significantly higher commodity prices. Notwithstanding, more stimulus is expected to be announced, including an extension
Roy Morgan Research has released its labour force survey for April, which reveals that Australian employment hit a record high 13 million in April, with the unemployment rate also falling another 2.4% to 9.0%: Almost everything is headed in the right direction as the economy powers through the end of JobKeeper: 13.29 million Australians were
The Trans-Tasman travel bubble has been suspended after a few cases of COVID community transmission appeared across Sydney. While only two community cases have been identified – a husband and wife – NSW authorities have yet to identify the “missing link” that transmitted the virus from the returning traveller into the community: “What we’re concerned
By Jesse Hermans, cross-posted from Prosper Australia Until recently, no government had a “cogent plan” to deal with impending combustion of Commonwealth fuel excise revenue. But now Victorian Treasurer Tim Pallas has risen to the challenge both to future proof Victoria’s road charging regime, and make Zero and Low Emissions Vehicles (ZLEVs) a more affordable choice for
Bosses across the Northern Territory have used the cover of ‘skills shortages’ to lobby the government to build a second quarantine facility at the former detention centre Bladin Village – 50 kilometres from Darwin – for the exclusive purpose of flying in foreign workers and students: The NT Farmers Association and Hospitality NT want to
Another hotel quarantine breach has prompted the NSW Government to tighten COVID restrictions for three-days from 5pm tonight. The source of the infection is reportedly a returned traveller from the US who stayed at the Park Royal at Darling Harbour. This man somehow passed the virus to a local Sydney man and his wife. However,
Deloitte Access Economics has forecast that public sector investment in infrastructure will increase by 20% 2020-21 and 13% 2021-22. By comparison, private sector investment in infrastructure is tipped to fall by 2.6% in 2020-21 followed by growth of 12% in 2021-22. Deloitte says there is currently more than $180 billion worth of public infrastructure projects
The Morrison Government has come under increasing pressure over its decision to ban direct flights from India amid its COVID surge. India has recorded 382,315 new COVID-19 cases and 3,780 deaths in the last 24 hours. And there are reportedly 9,000 Australians stuck in India, 900 of whom are considered vulnerable. A Melbourne man who
Last week, Interest.co.nz’s David Hargreaves posted the below chart showing how Kiwis have pulled back borrowing for everything except property: For the record the figures show us that personal/consumer borrowing is continuing to atrophy… Agricultural lending is continuing to drift lower… Business lending actually increased a little in the month of April (emphasis on ‘little’)
After being ignored for nearly a decade, it is gratifying to see Australia’s economics fraternity belatedly endorse MB’s argument that lower levels of immigration are necessary to drive labour underutilisation down and wages up. The shift began in March with the release of Ross Garnaut’s new book, Reset, which argues that the massive increase in
The ABS today released its Cost of Living Indices for the March quarter, which rose moderately on the back of rising petrol prices. However, the overall increase in the cost of living remained below the rise in the Consumer Price Index (CPI): In the March 2021 quarter, all five living cost indexes rose: Transport was
The ANZ-Roy Morgan consumer confidence index has been released with confidence lifting 0.3% in the weekend of 1-2 May following the end of Perth’s lockdown: The consumer confidence index (112.7) is now running around the historical average since 1990 (112.6); although the four-week average (113.3) is higher. According to ANZ’s Head of Australian Economics, David
Sources cited by The Australian have indicated that next week’s Federal Budget is likely to include a one-year extension of the low and middle income tax offset (LMITO), which is worth up to $1080. However, the government is said to have ruled out bringing forward the third stage of its personal income tax cuts, which
The Guardian’s economics poster boy, Greg Jericho, has written another article chock full of shiny charts attacking the federal government’s inability to drive unemployment down and wage growth up. Jericho’s key points are as follows: “We’ve had years of absurd budget projections about wages growth that never came true” because the Treasury’s assumed natural rate
The Australian has released a stunning series of reports (here and here) on Victoria’s latest hotel quarantine failure, which seeded the state’s third hard lockdown in February and resulted in international arrivals being banned for two months. The allegations are based on a secret Victorian Government report leaked to the paper, entitled Hotel Quarantine Outbreak Retrospective
Yesterday’s mortgage data from the Australian Bureau of Statistics (ABS) suggests that HomeBuilder and associated stimulus is starting to fade. According to the Housing Industry Association (HIA), first home buyer (FHB) activity in the construction market hit “its highest level since the stimulus associated with the GFC”. These FHBs “were significant beneficiaries of the [HomeBuilder]
For years we have fruitlessly pointed out the folly of Australia’s east coast gas exports. For the nation, the three LNG export plants built on Curtis Island were a shining example of Banana Republic commodity economics gone drastically wrong. The exports made no money for the producers, who were forced to write down tens of
And so it begins. Aussie catch-up growth has been very powerful. But it will end and soon in the second derivative. Indeed, maybe it just did. The AIG construction PMI as new orders growth slowed materially: Remember that PMIs are directional not positional so some of the components that are in structural oversupply are still
The Australian Bureau of Statistics (ABS) has released international trade data for March, which revealed that Australia’s trade surplus retraced by $2.0 billion to $5.6 billion amid falling exports (-$681 million) and rising imports (+$1,340 million): Nevertheless, Australia’s trade balance has been stuck firmly in surplus since 2019: The fall in exports was driven by
David Plank, economist at ANZ Bank, tips that the RBA will issue a revised forecast for the unemployment rate to fall to 4.5% – the so-called ‘full employment’ level – by June 2023. This follows CBA’s view that the RBA would forecast unemployment to drop to 4.75% by mid-2023: Both forecasts would be in the
New data from Roy Morgan Research tracking people movements across Australia’s capital cities shows that activity across Melbourne’s and Sydney’s CBDs was less than half their pre-COVID level at the end of April. Across the smaller capitals, people movements remained less than two-thirds of their ‘normal’ level: Commenting on the findings, Roy Morgan CEO Michele
ANZ has released its job ads report for April, which posted a 4.7% month-on-month rise in April, suggesting the labour market is well placed to absorb the ending of the JobKeeper wage subsidy. According to ANZ: It is not surprising that ANZ Job Ads has continued to rise post-JobKeeper. Businesses looking to hire new workers
As we know, Australia’s household saving rate boomed last calendar year on the back of lockdowns (which reduced expenditure) and massive stimulus (which increased disposable income). An enormous $187 billion of household income was saved in calendar year 2020 – more than double the previous peak of $80.5 billion saved by households in 2015: Turns
Below is a submission to the inquiry into Australia’s skilled migration program, written by Sustainable Population Australia with my assistance. The submission is a direct rebuke of the Morrison Government’s planned rebooting of Australia’s pre-COVID mass immigration program via giving Australian businesses easier access to migrant workers to overcome purported skills shortages. Introduction Sustainable Population
Last week, the Australian Bureau of Statistics (ABS) released its export/import price index, which signaled an enormous 11.0% increase in Australia’s terms-of-trade over the March quarter 2021 and a 15.8% increase through the year: This surge in the export/import price index was driven by a 18.2% quarterly rise in metalliferous ores and metal scrap prices,
New government figures show that more than 90,000 people have come off welfare benefits since JobKeeper ended in late-March. The stronger than expected recovery also means that the federal government now expects the final cost of the JobKeeper scheme to be about $88.8 billion, down from the October 2020 Budget’s forecast of $101.3 billion: Josh
There is no shame, nor memory, in the Australian press: Neil Perry can’t find workers for his new restaurant. Former union man and KPMG legend, Paul Howes, says all contention that immigration suppresses wages is “rubbish”. Other sectors are whining about needing more workers plus scaremongering about inflation. Many of them are operating in low