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.

1

Supply constraints stunt Aussie new car sales

The Federal Chamber of Automotive Industries (FCAI) released new car sales data for July, with sales nationally down basically flat against the same month last year, but annual sales growth continuing to stall: Commenting on the result, CEO of FCAI Tony Webber explained that global supply chain issues continue to restrict sales: “Vehicle and component

2

Aussie household spending ran hot before latest rate hikes

The ABS today released its Household Spending Indicator for June, which revealed household spending increased 10.2% through the year in dollar terms, with both services (+15.9%) and goods (+5.0%), and discretionary (+10.8%) and non-discretionary (+9.8%) spending lifting: Annual spending growth was solid across all jurisdictions:   According to Jacqui Vitas, head of macroeconomic statistics at

10

Coalition lurches further to the right with war on workers

Shadow employment and workplace relations minister Michaelia Cash has criticised the federal government’s upcoming jobs summit, claiming it will have union demands ‘rubber stamped’ at the expense of employers: Unions are “taking advantage” of Labor’s federal election win and will use the government’s upcoming jobs summit to have their demands “rubber stamped” at the expense

5

Consumer sentiment free falls with house prices

Bill Evans of Westpac cheering on the destruction of his own bank! Consumption is not going to hold up for very long and business investment will be next. Pass the popcorn. —————————————————————————————– The Westpac Melbourne Institute of Consumer Sentiment Index fell by 3% from 83.8 in July to 81.2 in August. This reading is on

17

Lunatic RBA crashes Aussie consumer confidence

ANZ-Roy Morgan’s weekly consumer confidence index has crashed by 4.5% to its lowest level since April 2020. This follows the Reserve Bank of Australia’s (RBA) third consecutive 0.5% rate hike last Tuesday: Key points from the release are as follows: Consumer confidence sank 4.5% last week, more than offsetting the gains over the previous three

15

Accountants highlight Australia’s skilled visa farce

Chartered Accountants Australia & New Zealand (CA ANZ) claims there is an acute shortage of accountants, which necessitates a big lift in the nation’s ‘skilled’ migration program: A survey of 18 firms in July revealed 519 outstanding skilled visa candidate applications for junior to intermediate level jobs, and on average at least one drop-out due

6

Fuel efficiency standards could have save Aussie motorists $5.9bn

A new report by The Australia Institute (TAI) think tank claims Australia would have saved $5.9 billion in fuel costs over the past six years had it adopted fuel efficiency standards in 2015. Labor proposed fuel efficiency standards prior to the 2019 election, but backflipped on the idea after the Coalition labelled the idea a

13

Universities turn degrees into toilet paper

Earlier this year, Productivity Commission data revealed that 47.8% of Australians aged under 25 were enrolled in a bachelor degree at university. In turn, it confirmed that the Rudd Government’s goal to increase university participation rates to 40% have been exceeded. According to data published on the federal government’s Course Seeker website, this explosion in enrolments

8

RBA: Aussie real wages to fall to 2009 levels

The Reserve Bank of Australia’s (RBA) August Statement of Monetary Policy (SoMP) shows that the rebound in Australian wage growth has badly lagged other developed nations: The SoMP also notes that “aggregate wages growth outcomes are expected to continue to be restrained by wages growth in public and private enterprise agreements, particularly in the near

11

CBA: Markets too hawkish on Australian interest rates

CBA’s head of Australian economics, Gareth Aird, has released a note explaining why he believes that the market’s projected official cash rate (OCR) for Australia – currently tipped to peak at 3.35% in March 2023 – remains too bullish. Instead, Aird tips that the OCR will peak at 2.6% – a level that he considers

6

Australia’s housing pipeline swells as builders go bust

The Reserve Bank of Australia’s August Statement on Monetary Policy (SoMP) showed that the pipeline of houses under construction has swelled to all-time highs on the back of rising costs and supply constraints: The Australian economy… [is] likely to be supported for at least the next year by the large pipeline of detached house construction

24

The Greens are right about privatisation

Greens leader Adam Bandt yesterday unloaded on former Labor Prime Minister Paul Keating, labelling him the “patron saint of privatisation”, claiming he started a rot that has left Australians worse-off: Mr Bandt branded Labor as a “neoliberal” party which had drifted to the far-right… Bandt said the former prime minister had a “short tongue but

5

Productivity Commission: Axe import tariffs once and for all

Around 90% of imported goods now come into Australia tariff-free, with cars, furniture and knitted goods among the remaining 10% of goods on which tariffs apply. The federal government currently collects around $1.5 billion from tariffs, or just 0.3% of its total tax take, and the amount that it collects will fall further as new

15

Albo readies another lost decade for Australia

In last year’s Christmas Special Report, we argued that Australia was “sowing the seeds of another ‘lost decade’”, because “Australia appears committed to repeat the same policy mistakes and poor outcomes that were experienced over the 2010s “lost decade” whereby the economy and living standards stagnated in per capita terms”. We argued that “Australian households

7

Trade surplus hits record high as Aussies go bust

Today, the ABS recorded the largest trade surplus in Australia’s history. In June, Australia’s trade surplus rose to $17,670 billion, up 66% year-0n-year: As expected, Australia’s giant surplus was driven by LNG and coal exports, which both soared to record highs: This follows a gigantic rise in prices owing to the Russia-Ukraine war: Sadly, the

7

‘Rack em and stack em’ immigration ponzi trashes Sydney

Recall that the NSW Government – which last year demanded an “explosive” surge of 2 million migrants over five years to boost the economy – has joined the business lobby in ramping up pressure on the Albanese Government to open the immigration floodgates: NSW Skills Minister Alister Henskens has called on the Albanese government to implement

6

Business insolvencies rising as interest rates bite

The number of Australian companies that became insolvent or appointed administrators fell sharply during the COVID-19 pandemic, due to factors such as government financial support and relaxed insolvency laws. However, Australian Chamber of Commerce & Industry CEO Andrew McKellar warns that more businesses are likely to collapse in the next six months or so, amid

15

High property prices kills productivity

The Economist has published an interesting report explaining how rampant house price inflation across the developed world has diverted capital and resources away from the real economy and stifles productivity: In recent years another strand of research has emerged, which, rather like the political economists of yore, attributes many long-standing economic ills to land. It

23

How Australia fell from productivity leader to laggard

The Productivity Commission (PC) has released its interim report on its 5 Year Productivity Inquiry, which shows that Australia’s productivity growth rate has fallen to its lowest level in 60 years. It also shows that Australia’s labour productivity ranking has fallen ten places, from 6th in the OECD to 16th, with Australia only maintaining its