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.


Household wealth hit record high $14.9 trillion before RBA tightening

The Australian Bureau of Statistics (ABS) yesterday released household wealth data for the March quarter of 2022, which revealed that total household wealth increased by 1.2% ($173 billion) over the March quarter 2022 reaching a record $14,891 billion: Total dwelling assets rose another 2.2% ($210 billion) over the quarter to a record high $9.7 trillion,


Australia’s manufacturing jobs wipeout continues

The Australian Bureau of Statistics (ABS) yesterday released quarterly employment data, which shows the healthcare & social assistance industry has comprehensively driven the nation’s jobs growth over the pandemic, while the manufacturing industry continues to shed jobs. Australia added 113,600 jobs in the May quarter, led by wholesale trade (+43,700), with Education (-30,900) and manufacturing


Australian cities tumble down liveability rankings

Of all the idiotic ‘awards’ handed out, The Economist’s ‘Most Livable City’ must surely rank near the top. Nevertheless, Australian cities continue to plunge down the rankings: The Austrian capital, Vienna, topped the rankings for the first time since 2019, with Melbourne in 10th spot — the highest-ranked Australian city — and tied with Osaka.


Public housing shortage costs $25b a year. Ramp immigration!

A new study by public policy consultants SGS Economics and Planning warns that an acute shortage of affordable housing amid decades of under-investment and rising population growth (read immigration) is set to cost taxpayers $25 billion a year if nothing is done: Social housing – a catch-all phrase covering public housing and other forms of


Aussie flash PMI fades away

S&P with the flash PMI. Reopening boom over. Next up: recession. Full report. — Australia’s private sector recorded a fifth straight month of growth, according to Flash PMI® data. Private sector output and new orders continued to expand at solid rates, leading to a continued expansion in Australia’s private sector workforce. That said, rates of


Don’t believe “the market” on Aussie interest rates

The latest futures market forecast has the Reserve Bank of Australia (RBA) hiking the official cash rate (OCR) to 3.5% by the end of this year before hitting 4.1% by May 2023: If the market’s projection proved correct, this would lift Australia’s average discount variable mortgage rate to around 7.5% – more than double the


ACTU lashes RBA wage-inflation hypocrisy

Earlier today I lashed Reserve Bank Governor Phil Lowe for demanding wage suppression to tame inflation while Australian businesses are busy charging higher prices and earning record profits: Secretary of the Australian Council of Trade Unions (ACTU), Sally McManus, has launched a similarly scathing attack on Twitter, asking why economists and Phil Lowe haven’t called


Aussie leading index rolls hard

Westpac with the index. Bill Evans is behind the times on what constitutes “stimulatory”. — The components of the Index are indicating an important emerging theme around Australia’s growth prospects – a significant shock to consumer confidence. Declining consumer sentiment was a major contributor to the slowdown in May – the Westpac-MI CSI Consumer Expectations


How to fix Australia’s broken skilled visa system

Data released by the Department of Home Affairs under freedom of information laws shows that 16,467 applications for regional skilled worker visas were awaiting processing in March 2022. The visa backlog coincides with a rise in the number of job vacancies in Australia to a record 423,000. Immigration Minister Andrew Giles says the federal government


Why feds should fund switch from stamp duties to land tax

The Centre of Policy Studies at Victoria University has published new modelling showing that switching from property stamp duties to broad-based land taxes would deliver big productivity benefits to the nation. According to the modelling, after 20 years replacing stamp duty with land tax would boost national income by $0.30 for each dollar of revenue


Economists blast RBA for fudging wage growth data

Economists have slammed the Reserve Bank of Australia (RBA) for relying on business liaison, rather than actual data, to claim that Australian wage growth was strong, which was then used to justify aggressive hikes in interest rates: The bank obtains evidence of wage growth from its in-house liaison program as well as through well-established business


Employer groups double down on wage-inflation propaganda

Unions across a range of sectors will now push for larger inflation-adjusted pay rises for their members in the wake of the latest minimum wage case. This has prompted the usual cabal of business lobby rent-seekers to scaremonger over a ‘wage-price spiral’: “Employers are experiencing rapid rises in costs for raw materials and energy, as


Good news: RBA to face independent review

Reserve Bank of Australia (RBA) governor Philip Lowe had pushed for a review of it to be undertaken by the central bank itself, in partnership with the Treasury. However, Treasurer Jim Chalmers has advised that a panel of independent experts will carry out the review, including a monetary policy expert from overseas. Amongst other things,


Building industry braces for “massive collapse” amid escalating losses

An expert is warning that Australia’s building industry is facing a “massive collapse” and financial ruin amid a perfect storm of fixed price contracts and soaring input costs. According to Russ Stephens from the Association of Professional Builders (APB), around half of all Aussie home builders are experiencing negative equity, with the industry facing a


Economists mislead again on immigration’s unemployment impact

A group of economists have joined forces to argue against the notion that rebooting ‘Big Australia’ mass immigration would drive up Australia’s unemployment rate and temper wage growth: “Migration has certainly played a role in the low unemployment rate so we have a lot fewer workers coming into Australia,” [Professor Robert Breunig, director of the


How Australia killed manufacturing for immigration-led ‘people servicing’

Monash University’s David McCloskey has released a new report for The Australian Population Research Institute (TAPRI) examining the impact of open market policies and reforms on the structure of Australia’s jobs and industries over the Census periods from 2006-2016. Calls for more reform and more labour market deregulation are based on the idea that they


Labor promises ‘Big Australia’ immigration

All the commentary coming from the new Albanese Government suggests that it is chomping at the bit to restore the ‘Big Australia’ mass immigration policy that Australians hate. The latest salvo comes from Immigration Minister Andrew Giles, who has vowed to make Australia an internationally competitive destination for skilled workers and to streamline visa application