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.
Business leaders and unions are demanding urgent support for the tourism and aviation sectors after government data revealed the industry lost almost $6 billion in three months during the pandemic. International tourism spending was down almost $4 billion or more than 27% for the March quarter compared with the same time last year. The greatest
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The weekly Roy Morgan / ANZ Consumer Confidence index has been released, which has fallen to an 8-week low amid the spike in Melbourne COVID-19 infections: Confidence fell a further 1% last week, taking it to an eight-week low. Although there was a marginal improvement in how people felt about their financial conditions, confidence in
Manchurian Dan Andrews has just given a press conference where he has re-introduced a stage 3 “stay at home” order to lock down Melbourne for six weeks from midnight Wednesday. School holidays have been extended for a week. Then senior school students will be permitted to go back to school, as will special school students.
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New Zealand Prime Minister, Jacinda Adern, has opened the door for a trans-Tasman travel ‘bubble’ between Australia (ex-Victoria) and New Zealand by September: New Zealand Prime Minister Jacinda Ardern has reiterated that the billion-dollar tourism trade trans-Tasman bubble could go ahead in September with “safe” Australian states such as Queensland… Travel industry veteran and co-chair
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Victoria has posted a record 191 new cases of COVID-19, a big increase on yesterday’s record daily increase of 127. As shown in the next chart, new infections have blown past March’s peak and are growing exponentially: The situation is actually much worse, given March’s cases were imported whereas today’s cases are primarily from community
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Abul Rizvi – former Deputy Secretary of the Department of Immigration and one of the architects of Australia’s faux ‘skilled’ migration program – has again warned that Australia won’t meet its lofty net migration targets for a decade: Even before the coronavirus hit, net migration was lower than government forecasts. In the 2019 budget, the
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Westpac chief economist, Bill Evans, believes that it could take many years for Australia’s unemployment rate to return to its pre-COVID level: “The biggest story for recessions is always around the labour market. “If we look at the early 1980s recession it took six years for the unemployment rate to get back to the pre-recession
In early March, panic buying gripped the nation with shoppers stockpiling staples like toilet paper, tissues, rice, flour, canned goods, bottled water, and hand sanitiser. Store shelves were stripped bare creating acute shortages of goods and forcing supermarkets to place hard limits on the number of items that could be purchased across a wide variety
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For years MB has warned that Victoria (Melbourne) is a ponzi-based economy, dangerously reliant on mass immigration and construction to drive growth, often at the expense of individual incomes and living standards. Those chickens are coming home to roost. In April, SGS Economics and Planning warned that Victoria’s economy is facing collapse as its long
Over the weekend, Terry McCrann called for the mass immigration ‘Big Australia’ Ponzi scheme to be abolished once and for all: Abandoning the ‘Big Australia’ population Ponzi that has been — chaotically — the foundation of our economic policy framework for the past 20 or so years and which has not only substituted for the
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Following Roy Morgan’s 14.5% unemployment estimate for June: Terry McCrann has ripped into the Australian Bureau of Statistics’ (ABS) “fake” unemployment rate of 7.1%, which McCrann argues is probably closer to 20%: Right now, the ABS is still trumpeting a ludicrously fake 7.1 per cent jobless rate in pride of place at the top of
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From Roy Morgan Research: In June 2020 Roy Morgan Business Confidence was up 5.1pts (+5.7%) to 95.0 led by increases in WA, NSW and Queensland. Business Confidence in June is now virtually level with its March result of 95.1 during the onset of the COVID-19 pandemic and shut-downs. The good news in June is that
Manchurian Dan’s Victoria is starting to resemble Wuhan, with a record 127 new COVID-19 infections recorded across the state today: There are now 642 active cases in Victoria, 97% of the nation’s total: As shown below, Victoria’s COVID-19 infections have turned exponential while the rest of Australia has flatlined: This represents an epic failure by
From The ABC: The Victorian border with New South Wales will be closed from Tuesday night following talks between Premiers Daniel Andrews and Gladys Berejiklian and Prime Minister Scott Morrison, the ABC understands. Mr Andrews is due to hold a press conference at 10:45am. Victoria is now fully isolated from the rest of Australia.
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