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.


COVID-19 restrictions drive fall in winter mortality rate

According to the ABS’ Provisional Mortality Statistics, winter deaths fell below average due to COVID-19 social distancing restrictions: 92,015 doctor certified deaths occurred before 25 August. Deaths rose in the second half of winter but remain below average. Respiratory disease deaths have been lower than historical minimums since June… There were 7,941 deaths from respiratory diseases between 1


South Australia overhauls hotel quarantine system

The South Australian Government has announced an overhaul of its hotel quarantine system after systemic failures led to an outbreak numbering 29 cases: South Australia has announced urgent plans to overhaul its medi-hotel system, amid a coronavirus cluster that emerged from Peppers Waymouth Hotel in Adelaide. Those changes include moving all people who test positive


China must not be allowed to dominate regional trade deals

Last week the Morrison Government signed the giant secret trade deal called the Regional Comprehensive Economic Partnership (RCEP). The RCEP is led by China and will also comprise members of the Association of Southeast Asian Nations plus Japan, South Korea, New Zealand and Australia. Now China has indicated that it is interested in joining the


Residential construction collapses

The ABS has released data on the value of construction work done for the September quarter of 2020, which registered another 2.6% seasonally-adjusted decline in total construction activity over the quarter – the ninth consecutive quarterly decline – and a 4.2% decrease over the year: However, the result disappointed analysts’ expectations of a 2.0% decline


Victorian Government takes right path on stimulus

The Victorian Government yesterday released its 2020-21 State Budget, which will see the Government embark on a massive stimulus program in a bid to support 200,000 jobs within 18 months and 400,000 by 2025. Below are key extracts from Treasurer Tim Pallas’ speech combined with key figures from the Budget Papers: With Victoria’s gross state


Private sector scores surprise EA wage lift

The latest ABS wage price index revealed that private sector wage growth collapsed to only 1.2% in the September quarter versus 1.8% growth across the public sector: Data from the federal Attorney-General’s Department shows that the average pay rise in new private sector enterprise agreements (EA) was 3% in the June quarter, beating 2.2% growth


Alert! Quarantine system can’t handle international students return

NSW Premier Gladys Berejiklian’s call to open Australia to international students and skilled migrants has been shut down by reality, with minutes of a meeting between government officials and representatives of security firms showing NSW’s hotel quarantine system is at breaking point: The NSW hotel quarantine scheme has been beset with thousands of incidents, with


Australia records one new local COVID-19 infection

Australia recorded 8 new COVID-19 infections, although only 1 was locally acquired: The locally acquired infection was recorded by South Australia, which is still getting its outbreak under control: Australia now has only 94 active COVID-19 infections, of which 40 are locally acquired: These active local cases are comprised of 28 in South Australia: Whereas


Victoria eliminates COVID-19

Victoria has recorded a 24th consecutive day with no new COVID-19 cases, and the state now has no active cases for the first time since February. An elderly couple were the last remaining COVID-19 patients from the state’s second wave of infections. The man in his 90s was discharged from Monash Medical Centre on yesterday


RBA: JobKeeper hid 700,000 from unemployment queue

The RBA has released new analysis on the JobKeeper scheme’s impact on unemployment, which found that JobKeeper reduced Australian’s unemployment by 700,000 over the first four months of the COVID-19 pandemic: We find that one in five employees who received JobKeeper (and, thus, remained employed) would not have remained employed during this period had it


ANZ consumer confidence falls

ANZ-Roy Morgan Aus Consumer Confidence broke an 11-week winning streak to fall 2%, as SA went into a short lockdown. With the lifting of restrictions in Vic and NSW, the impact may be short-lived. #ausecon #ausretail @roymorganonline @DavidPlank12 — ANZ_Research (@ANZ_Research) November 23, 2020


Australia reaches deep down international student quality barrel

On Friday, the Australian Bureau of Statistics released services trade data for the 2019-20 Financial Year, which revealed that education exports from China plunged by 14.2%. However, this was almost fully offset by strong growth in education exports from India (+19.2%) and Nepal (+12.6%), with total education exports falling by only 0.7% over the year:


Governments must learn from hotel quarantine failures

Astonishing details have emerged about the hotel quarantine worker at the centre of South Australia’s COVID-19 outbreak and hard lockdown: At least 20 detectives are investigating the Adelaide pizza shop where an employee on a temporary graduate visa lied to contact tracers, plunging South Australia into the hardest lockdown in the country. The worker, who


Dan Andrews right to ditch airport rail tunnel

Two years ago, the AirRail Melbourne consortium – which includes the owner of Southern Cross Station and part owner of Melbourne Airport, IFM Investors – offered to contribute $5 billion (on top of the state and federal government’s $10 billion) to own and operate the Airport Rail Link tunnel, with the service slated to “deliver a


HILDA survey shows generational housing and wealth divide

The Melbourne Institute’s latest Household, Income and Labour Dynamics in Australia (HILDA) report has been released, which shows that the nation’s average household assets increased by 64% to $1.37 million between 2002 and 2018. However, average household debt rose by 104% to $203,496 over this same period: The growth in assets was driven by housing,


Berejiklian puts foreign students, skilled migrants ahead of Aussies

NSW Premier Berejiklian announced over the weekend that she wants to use one third of the state’s 3,000 hotel quarantine places to bring in international students and skilled migrants: In an interview with The Sun-Herald, Ms Berejiklian said she wants NSW to use a third of its hotel quarantine slots to take in international students, skilled


Aussie flash PMI firms

Via Markit: Latest PMI data showed the expansion in the Australian private sector economy strengthened midway through the fourth quarter as containment measures were eased further. Business activity growth accelerated in November, led again by the service sector. Inflows of new business rose further, but at a noticeably slower rate when compared to output. Business


Retailers anticipate solid Christmas sales

Roy Morgan’s annual Christmas retail sales forecasts, conducted in conjunction with the Australian Retailers Association, suggest Australians will spend over $54.3 billion across retail stores during the Christmas trading period, an increase of 2.8% from the $52.9 billion of retail expenditure during the 2019 Christmas trading period: Roy Morgan’s annual Christmas retail sales forecasts conducted


ABS: Business confidence and revenue outlook improves

The ABS has released its Business Indicators, Business Impacts of COVID-19 survey for November, which shows widespread improvement in confidence and revenues: Almost a quarter (24 per cent) of businesses reported an increase in their monthly revenue in November compared to 16 per cent in October, according to results released from the Australian Bureau of Statistics


Australian policy makers don’t want higher wages

The Guardian’s Greg Jericho argues the Morrison Government is using the COVID-19 pandemic to lock in low wages and insecure work: One thing that could improve the [low wage] situation is for the federal government to help spur wages growth by lifting its 2% annual wage growth cap… The government instead announced that “commonwealth public sector


Youth unemployment surges

Yesterday’s ABS labour force release for October revealed that Australia’s youth unemployment – i.e. for those aged 15 to 24 years old – surged despite solid growth in jobs. The headline youth unemployment rate rose 0.9% to 15.6% and remains nearly three times higher than the rest of the labour market (5.4%): However, youth jobs