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.
The rapid growth in international students (see next chart) has led to accusations that Australia’s universities are treating them as “cash cows” to be milked for lucrative fees and easy profits. And it’s not hard to see why. According to research by Jerry Zheng, the content editor for OneClass, international tuition fees (17.88%) at Melbourne University
By Leith van Onselen Fairfax’s senior business columnist, Stephen Bartholomeusz, believes that recent earnings downgrades at Target, Kmart and Wesfarmers is pointing to “recession-like” conditions for the retail sector: The broader retail environment is recessed – non-food retail sales were falling in the lead-up to the Federal election and the economy is growing at its
More steaming rubbish from Gottiboff today: I have a warning for Scott Morrison and Josh Frydenberg——many oldies don’t like what you are doing. It all starts with the Reserve Bank, which believes that if it lowers interest rates it will lower unemployment. Ranking second and third are retail and construction. There is no doubt that
By Leith van Onselen Macquarie Private Bank founder and executive chairman of fund manager Atlas Advisors, Guy Hedley, has demanded that the Morrison Government open the immigration floodgates to wealthy Chinese. From The Australian: The Morrison government needs to resuscitate the visa scheme designed to lure wealthy Chinese investors… The SIV program grants people who
At the AFR: Finding jobs for Harriet Blomfield, 18, has been easy. But she would prefer to not have to work four different gigs. The Australian Bureau of Statistics estimates that as at March 2019, around 979,583 people had secondary jobs. This is up from 853,248 in March 2017, 852,311 in March 2015, and 782,756
Ross Gittins wants to see Keynesian stimulus: … any fiscal stimulus is very short run, so as to support the economy before monetary stimulus fully kicks in, thereby minimising the harm done. Remind you of anything? The package of budgetary measures – the cash splashes and shovel-ready capital works – designed mainly by Treasury’s Dr
ABC Four Corners’ recent report on Australia’s international student trade, entitled “Cash Cows”, provided damning evidence that Australian universities have badly lowered entry and teaching standards in a bid to entice large numbers of lower-quality, full fee-paying international students: “In terms of attracting international students, universities will do whatever they need to do…they are the
By Leith van Onselen The sudden sharp decline in Chinese tourists and international students has caught Australian authorities off-guard, raising painful memories of when booming Japanese arrivals slowed suddenly in the late-1980s. From The AFR: …the narrative that the boom is going to last forever is no longer accurate. China’s economy is slowing and its
Welcome to your new economic model at SmartCompany: A whopping 725 workers have been back-paid more than $330,000 after a series of Fair Work Ombudsman (FWO) raids identified worrying levels of wage theft in regional Victoria and NSW. Less than three weeks after recovering $580,000 in stolen wages from regional businesses across Australia’s eastern seaboard,
By Leith van Onselen Victorian Premier, Dan Andrews, has tacitly admitted that the state is unable to build infrastructure fast enough to keep pace with manic immigration-driven population growth. From The AFR: “We are pretty well at full-tilt with sand, gravel and concrete,” Mr Andrews told The Australian Financial Review’s National Infrastructure Summit in Melbourne
Via UBS: Taking stock post-election – Has retail rebounded? No, we don’t believe it has. There is growing evidence that it has remained subdued / steady, albeit we note it is very early: i) Listed retailer updates and our channel checks suggest no change, with housing categories still softer (Figure 2); ii) Footfall has seen
Via The Australian: Finance Minister Mathias Cormann has ruled out doing deals with crossbench senators to win their support for the Coalition’s $158 billion personal income tax cuts, intensifying pressure on Labor to back the plan. The blanket refusal by the government’s Senate leader to negotiate special deals or buckle to demands from Pauline Hanson
By Leith van Onselen Yesterday’s ABS labour force release for May revealed a deteriorating Australian youth labour market – i.e. those aged 15 to 24 years old – with both full-time and total jobs growth falling and unemployment and underemployment rising. The trend headline unemployment rate rose to 11.8%: Total employment growth for those aged
By Leith van Onselen Yesterday’s AFR National Infrastructure Summit featured robust discussion about direct road user charges: New Infrastructure Australia chief executive Romilly Madew said road user charging was definitely on the infrastructure agenda and needed to be pushed through to compensate for falling income from fuel taxes as people shifted to electric vehicles. Michael
By Leith van Onselen Flip-flopping demographer Peter McDonald is back with more immigration propaganda at yesterday’s AFR Infrastructure Summit, where he derided Scott Morrison’s decision to lower the non-humanitarian permanent migrant intake to 160,000: Peter McDonald, professor of demography at the University of Melbourne, said Australia was facing a potential “labour-supply crunch” because about two million
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By Leith van Onselen The ghettoisation of Western Sydney continues, with a record number of patients flooding the regions emergency departments and waiting times blowing-out, according to the latest NSW hospital data: Record numbers of patients are swamping emergency departments across NSW… The rising numbers – above population growth – show no sign of slowing…
By Leith van Onselen The Australian Bureau of Statistics yesterday released its overseas short-term arrivals and departures figures for April, which showed a trend moderation in arrivals and a worsening is Australia’s ‘tourism balance’. The number of short-term visitor arrivals dived by 16.3% in April in original terms, whereas short-term resident departures rose by 27.5%
Via WES:
By Leith van Onselen Hot on the heels of former Infrastructure Australia (IA) chief, Michael Deegan, slamming the shroud of secrecy surrounding infrastructure provision across Australia, which has resulted in taxpayers being gouged, current IA head, Romilly Madew, has warned that Australia’s failing infrastructure is wrecking both productivity and living standards. From The AFR: Ms Madew
The latest official temporary migrant statistics from Australia’s Department of Home Affairs shows there were around 613,000 international student visas on issue as at March 2019, and increase of 77,000 (14%) from the year prior and up 280,500 (84%) since March 2013: As shown in the next chart from ABC Four Corners recent expose, this
Via Damien Boey at Credit Suisse comes his excellent aggregated leading indexes for growth: Going precisely nowhere.
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By Leith van Onselen The Australian Bureau of Statistics (ABS) has released visitor arrivals and departures statistics for the month of April, which suggested that immigration into Australia continues to surge. In the year to April 2019, there were a near record 843,950 permanent and long-term arrivals into Australia, up 5% from April 2018, and
By Leith van Onselen The ABS yesterday released a new experimental series on Australia’s labour market, which examines the number of filled jobs in Australia (as opposed to the number of people in work), which suggests that the labour market is weakening: The total number of filled jobs in Australia grew slowly in the March
On both measures. First ANZ: Weak Q1 GDP and the soft retail figure for April have seen consumer confidence move lower over the past week, despite the rate cut from the RBA. Looking back to the rate cuts in 2015 and 2016, there was no tendency for confidence to rise immediately following the move lower
By Leith van Onselen Last week’s national accounts release for the March quarter confirmed that Australia’s FIRE economy – Finance, Insurance and Rental, Hiring & Real Estate Services – continues bleeding its host, with its share of the Australian economy rebounding to a near record high 11.7%: Since financial markets were first deregulated in the
Via Martin North: We have released our latest financial confidence index which is derived from our rolling 52,000 household surveys. The index moved a little higher since the election, reflecting some more positive vibes from property investors, at the margin, and from those holding property more generally. It is all relative however, as the current
Vi NAB: Business conditions weakened further in the month and are now well below average – the key message remains that the private sector continues to lose momentum. The goods distribution industries (especially retail – which is clearly in recession) remain particularly weak, and manufacturing is not far behind. The services industries appear to be
VIPs (read Chinese) gone: Trade war fallout?
