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.
By Kelvin Thomson, National Media Spokesperson, Sustainable Australia Party We’ve just had another bout of breathless reporting from journalists, economists and commentators about our economic growth, accompanying the release of the Mid Year Economic and Fiscal Outlook. Remarkably, people who ought to know better continue to talk about GDP, but make no mention of GDP
As I analysed the recent MYEFO projections, one thing stood out: Here’s the economic outlook: GDP for this year might be OK but it’s odds-on too bullish. But 2020/21 is deluded and so are the outer years. It is tradition to forecast Futureboom! to bailout today’s stupidity. But it doesn’t ususally accompany a forecast commodities bust which
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Even the super funds are at it, via Banking Day: In an embarrassing admission, ME Bank yesterday confirmed that it underpaid staff A$1.5 million in superannuation entitlements for more than a decade. The bank, which is owned by industry super funds, last week notified 2144 current and former employees about the underpayments that were caused
Via Australian Government: All strata: All states: We think this has at least six months to go, if not twelve. Go Recessionberg. Full report.
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Via the ABC: Four hundred people have lost their jobs a week out from Christmas after a group of building supply businesses in Melbourne’s west went bust. The SWC Management group, which operates out of a massive newly redeveloped warehouse in Melbourne’s western suburbs, announced it was going into voluntary administration on Tuesday, with advisory
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Treasurer Josh Frydenberg did his best to spin yesterday’s Mid-Year Economic and Fiscal Outlook (MYEFO), claiming Australia’s GDP growth is still among the strongest in the developed world. Here’s Frydenberg on Channel 9: Well there’s always work that we continue to do to strengthen the Australian economy, but if you look at these numbers, it
In a magnificent outpouring of guff today at the AFR, L-plate Tresurer Josh Frydenberg puts all stimulus hopes to bed: As we go forward, we will continue to maintain a disciplined and responsible approach to managing the nation’s finances. We will not be panicked into reckless spending. With the budget back under control, our fiscal
‘Highrise’ Harry Triguboff has told Sydney’s wealthy eastern suburbs that it must accommodate more migrants and accept greater densities: Leading property developer Harry Triguboff says Sydney’s eastern suburbs need to absorb more people to take the pressure off the city’s west. The billionaire Meriton founder has also challenged the state’s politicians to build more homes
Finance Minister, Mathias Cormann, went to extraordinary lengths yesterday to spin the Mid-Year Economic and Fiscal Outlook (MYEFO), claiming repeatedly that household disposable incomes were rising at their fastest pace in a decade: Household disposable income has risen at its fastest rate in more than a decade and Australia has maintained its AAA credit rating…
Sydney’s water storages continue to plunge at a rate that makes the Millennial Drought look like child’s play: There’s no end in sight either, according to the Bureau of Meteorology, with no significant rainfall predicted until April. And when rain does finally arrive, the lake which supplies 80% of Sydney’s water is facing possible contamination
Via Westpac’s always superb Red Book. The consumer is dead: Whodunnit? RBA and Treasury: After the tax cuts comes…trouble: More Bad Santa: Major items meh: Let them eat house prices: Any windfall stuffed under matress: Deleveraging rife: Worse unemployment and spending ahead: All states, blokes shocker: Households hate ZIRP: Bloody depressed on global scale: The
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Yesterday evening I was interviewed on ABC’s Drive Program (above) debunking SGS Economics and Planning’s new report claiming that Melbourne is Australia’s “economic powerhouse”. My arguments were based on yesterday’s article entitled “Melbourne ‘economic powerhouse’ delivers falling living standards”, which contains evidence supporting my claims. I did make one minor error in the interview, however,
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Rice Warner forecasts that Australia’s superannuation industry will have $7 trillion worth of assets under management by 2034, compared with $2.7 trillion at present. The firm also expects the sector to eventually be dominated by a handful of ‘megafunds’ that will dominate the Australian economy: The report predicts that the superannuation industry will dominate the
For more than five years, MB has regularly ridiculed Australia’s ‘skilled’ visa system, which we have proven is poorly targeted, ineffective, and is failing in its stated purpose of alleviating chronic ‘skills shortages’ across the economy (see here). On Friday, the Department of Employment, Skills, Small and Family Business published a Traffic Light Bulletin outlining
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The ANZ-Roy Morgan Financial Wellbeing Report has been released, which claims that Australian household savings are running at five-year highs: Figure 8 shows that the amount of savings Australians hold in deposit and transaction accounts has increased, with mean savings rising from $29,430 in December 2014 to $41,262 in December 2018, and median savings increasing
In an interview with CNBC, SQM Research’s managing director, Louis Christopher, claims that Australia’s authorities are hoping the rise in Australian dwelling values will feed through to greater confidence in the economy. However, Christopher has “serious questions” about that view because the housing recovery is not creating more jobs. Instead, unemployment is set to rise,
Fairfax’s Adele Ferguson continued her four year campaign against wage theft over the weekend, which mostly involves migrants on temporary visas: At 7-Eleven thousands of workers were students on visas who were underpaid… Since the 7-Eleven scandal there have been many more companies caught up in underpayment issues including Domino’s, Caltex, Retail Food Group, Pizza
Andrew Stone is a veteran economist that spent five years at the Australian Treasury and more than a decade at the Reserve Bank of Australia before working for nearly five years as Chief Economist and senior policy advisor to the Tony Abbott. In his new book, entitled Restoring Hope: Practical Policies to Revitalize the Australian
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The Recessionberg plan is going swimmingly, via CBA: The latest Commonwealth Bank Flash Composite PMI® pointed to a further marginal decrease in business activity across the manufacturing and service sectors in the final month of 2019. Weakness was particularly evident at manufacturers, which saw the sharpest decline in the 44-month survey history. On the other
As we already know, Sydney is a primary entry point for migrants: And Western Sydney is the prime dumping ground for these migrants: With Western Sydney also projected to receive the lion’s share future immigration-driven population growth – i.e. an additional 1.2 million people over the next 20 years, according to the Greater Sydney Commission:
I reluctantly ducked into Chadstone Shopping Centre earlier this week to buy Christmas gifts and was pleasantly surprised by how quiet the centre was. I hate shopping – even more so during Christmas, where the crowds are infuriating. I live reasonably close to Chadstone, therefore, rode my bike to avoid car parking. However, to my
