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.


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


Australia’s 14 demands for the resumption of ties with China

Presented with great fanfare, here are the demands from Australia to China before we’ll be doing anything to restore the relationship: Free and fair elections for all repressed Chinese peoples. The resignation of Xi Jinping in disgrace for human rights abuses and inflicting the worst plague in a century upon the world. A full-blown international


Another Victorian COVID-19 failure emerges

Days after the Australian Medical Association (AMA) slammed the Victorian Health Department over its COVID-19 response, another shocking failure was revealed at a parliamentary inquiry into the state’s contact-tracing regime: A worker infected with coronavirus from Melbourne’s Cedar Meats was twice turned away from COVID-19 testing at least 10 days before the first case was


ABS employment in detail: recovering

As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for October, which registered a 0.1% rise in the official unemployment rate to 7.0% but a 1.4% increase in jobs: Full-time jobs surged by 97,000 and part-time employment by 81,800: The participation rate rose by 0.95% to 65.81%, which is


Zero new COVID-19 cases recorded with SA cluster under control

Australia recorded 8 new COVID-19 infections overnight; however these were returned travellers in hotel quarantine: Importantly, there were zero new locally transmitted cases, with South Australia seemingly getting their outbreak under control after isolating 4,000 people and implementing a full 6-day lockdown: Australia now has 96 active COVID-19 cases, of which 45 are locally acquired:


Australian unemployment numberwang rolls on

Via ABS Labor Force just now and the numberwang continues with an absurd 178k jobs created versus consensus of -40k based upon the ABS’s own payrolls data: Seasonally adjusted estimates for October 2020: Unemployment rate increased to 7.0%. Participation rate increased to 65.8%. Employment increased to 12,773,900. Employment to population ratio increased to 61.2%. Underemployment


Deloitte: Australia awash with small business ‘zombies’

Deloitte has released its weekly economic briefing, which Australia’s COVID-19 induced economic recession has put many businesses under financial pressure. But unusually, the number of Australian businesses that have had to close down due to running out of money (become insolvent), has actually fallen in 2020. This is partly due to economic stimulus measures that


SEEK jobs ads rebound

From SEEK: OVERVIEW OF OCTOBER 2020: STATE OF THE NATION: SEEK job ads are up by 8.5% month-on-month (m/m). SEEK job ads are down 11.7% year-on-year (y/y), which is the smallest y/y decline since the pandemic began. Industries with the highest job ad growth m/m by volume are Trades & Services, Healthcare & Medical and


RBA should butt out of foreign relations

Its position is preposterous and untenable on immigration. From Bill Evans at Westpac yesterday: The minutes of the November meeting along with a recent speech from the Governor emphasise a significant pivot in the Board’s approach to monetary policy. The labour market now takes centre stage. Consistent above trend growth will be required to lower


RBA: COVID-19 drives big productivity gains

Reserve Bank of Australia (RBA) governor, Phil Lowe, claims that the COVID-19 pandemic has driven productivity improvements across the economy: “In some areas, progress that otherwise would have taken years has been made in a matter of months”… “The combination of necessity, new technologies and the easing of regulations has made a real difference. “Digitalisation


The great farm labour shortage lie

Australia’s farmers continue to complain about acute labor shortages due to the sharp reduction in Working Holiday Maker visa holders in Australia because of the COVID-19 pandemic: The latest example comes from 7News, which reports that growers are facing a “dire shortage of pickers”: The report conveniently ignores the  abundant evidence of temporary migrants being


Leading index goes boom on catch-up growth

Via Westpac: • The six-month annualised growth rate in the WestpacMelbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, rose from –0.47% in September to +3.25% in October. This is the first positive, above trend, growth rate since November 2018. It is


Aussie wage growth collapses to new low

The Australian Bureau of Statistics (ABS) has just released its Labor Price Index for the September quarter of 2020, which reveals that wage growth has plunged to fresh lows: According to the ABS, wages grew by just 0.07% in the September quarter. Private sector wages grew by only 0.08% over the quarter, whereas public sector


JobSeeker cut to throw 190,000 more people into poverty

The Australia Institute (TAI) has released a new report arguing that the Morrison Government’s decision to reduce the rate of JobSeeker by $150 from January 2021 will push an additional 190,000 Australians below the poverty line: On the 10th November 2020 the Coalition Government announced that it was again cutting the coronavirus supplement from its


RBA wants to crush wages with mass immigration

I reported on Monday how Stephen Kirchner – Program director for the United States Studies Centre at the University of Sydney – has urged the Australian Government to open the immigration floodgates to help the economy recover from the COVID-19 pandemic. After reading Kirchner’s full report yesterday, I was gobsmacked by the falsehoods put forward


Jacinda Ardern junks Trans-Tasman travel bubble

The emergence of a COVID-19 cluster in South Australia (see next chart) has persuaded New Zealand’s Prime Minister, Jacinda Ardern, to scrap the proposed Trans-Tasman travel bubble. From The Guardian: Australia and New Zealand are tackling the pandemic with slightly different strategies, leading to an impasse over a border reopening. Australia is pursuing a suppression


AMA lashes Victorian Health’s COVID-19 response

The Australian Medical Association’s (AMA) Victorian president Julian Rait has criticised the Department of Health & Human Services over its COVID-19 contact-tracing system. Rait has told a parliamentary inquiry into the state’s contact-tracing regime that the Department is ‘culturally flawed’ and must be more accountable and transparent: “I think culturally there is a flaw in