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.


Australia’s household wealth booms

The Australian Bureau of Statistics (ABS) yesterday released household wealth data for the September quarter of 2021, which revealed that total household wealth increased by 4.4% ($590.0 billion) over the September quarter 2021 reaching a record $13,918.5 billion: Total dwelling assets surged by 5.5% ($465 billion) over the quarter to a record high $8.85 trillion,


Youth labour market thriving without immigration

Yesterday’s employment report from the Australian Bureau of Statistics (ABS) revealed that Australian youth unemployment surged after NSW, Victoria and the ACT exited lockdowns. Total youth jobs rose by 128,300 in November, driven by a 89,600 increase in part-time jobs and a 38,800 increase in full-time jobs: The youth unemployment rate dived by 2.2% to


UBS: mining looking sour for 2022

UBS contend that 2022 will not the year for mining, as the macro backdrop weakens as global demand slows down post-pandemic amid tapering of stimulus and easing of supply constraints. They reckon to avoid iron ore and coal, with their new commodity forecasts are as follows:   We maintain a sector underweight but within that


MYEFO all unicorns and rainbows

Yesterday afternoon, the Morrison Government released its pre-election Mid-Year Economic and Fiscal Outlook (MYEFO), which tipped a strong rebound for the Australian economy. The below chart provides the key forecasts for the Australian economy over the forward estimates: The next table shows the detailed forecasts compared with the federal budget to 2022-23: Of most note,


ABS employment in detail: Jobs market launches after reopening

As already reported, Australia’s unemployment rate fell 0.6% in November to just 4.6%: Total jobs surged by 366,100 to 13,177300 people in November, with full-time jobs rising 128,300 and part-time jobs jumping by 237,800: The participation rate also rose by 1.4% to 66.07%: The next chart plots the participation rate over the long-run. It is


Omicron hitches ride to the Sunshine State

Well, this is what happens when you open borders and let in the great unwashed Victorians and Cockroaches who are seeking sun and surf: From the ABC: Queensland has 22 new cases of COVID-19 and 18 of those were detected outside quarantine, Health Minister Yvette D’Ath says. The local cases spent up to a week in


Aussie employment surges 366,100, smashes expectations

The ABS has released labour force estimates for November with jobs surging 366,100 and the unemployment rate diving 0.6% to 4.6%, despite a large 1.4% rise in the participation rate: The result smashed analysts’ expectations of 200,000 jobs growth. The key figures are summarised below: Unemployment rate decreased to 4.6%. Participation rate increased to 66.1%. Employment


Coalition pledges a million new jobs for migrants

The federal government will commit to adding one million jobs to the economy over the next four years when Treasurer Josh Frydenberg releases the mid-year budget update later today: The mid-year budget update on Thursday will show a surge in ­employment growth between now and 2024-25, with 150,000 more jobs expected to be created than


NSW/VIC COVID cases surge higher

NSW has recorded another surge in COVID cases, with another 1742 cases recorded over the past 24 hours; although there were zero deaths: Victoria’s cases also rose by 1622 with another nine lives also lost: The next chart plots the spike in daily cases across both jurisdictions: Active cases have also surged in NSW: NSW’s


HILDA: Typical Aussie household no better-off than 2009

The 2021 Household Income and Labour Dynamics in Australia (HILDA) survey was released last week, which follows the lives of more than 17,000 Australians each year. A key finding from this year’s report is that real median household disposable income in 2019 ($84,243) was virtually unchanged from 2009 ($83,370): Thankfully, the situation has improved over


Wasn’t the point of vaccination to avoid lockdowns?

Booking travel or attending hospitality events has become a game of Russian Roulette, with fully vaccinated Australians being forced into quarantine despite displaying no symptoms and testing negative for the virus. The most egregious example involves hundreds of passengers who travelled on two Virgin Australia flights from Newcastle to Queensland on Monday. They and their


Victoria eases vaccine segregation

With 92% of Victorians double vaccinated, the state government has just amended its vaccine segregation policy. In particular, the unvaccinated can now attend non-essential retail, real estate, places of worship, weddings and funerals. But they will still be blocked from attending hair and beauty, as well as hospitality and gyms. Masks will also remain mandatory


COVID cases rocket in NSW

Victoria has recorded another 1405 new COVID cases and three deaths: By comparison, NSW recorded 1360 new COVID cases and one death: The next chart shows the explosion of daily cases across NSW, which have roughly tripled in a week and are running close to the prior peak: Active cases in NSW are also rising


Westpac: the top is in for commodity prices

Westpac is out with an updated research note on commodities, contending that 2021 was the top for commodity prices, citing production costs now far outweighed by a “fundamental correction to high(er) prices”. There’s stormclouds on the horizon as the US Federal Reserve begins to taper its bond purchases and stamp on the interest rate hikes,


Immigration negative ahead of Big Australia ponzi relaunch

Yesterday, the Australian Bureau of Statistics (ABS) released Overseas Arrivals and Departures data for October 2021, which suggests net migration into Australia remained firmly negative. There was a net 9,850 permanent & long-term departures in October, whereas over the quarter there were 20,350 net permanent & long-term departures: Since the pandemic began in March 2020,


Consumer confidence rises on border reopenings

The weekly ANZ-Roy Morgan consumer confidence survey has been released, with confidence rising 0.5% last week ahead of the Qld border reopening to NSW and Victoria (from Monday): Below are the movements across the key sub-indices: Current financial conditions Now 30% (up 1 ppt) of Australians say their families are ‘better off’ financially than this


Employee earnings rise strongly in 2021

The Australian Bureau of Statistics (ABS) has released employee earnings for the year ended August 2021, with median employee earnings rising $50 (4.3%) to $1200. However, median hourly earnings remained steady at $36 per hour since August 2020, suggesting the increase in pay has arisen from working more hours: As shown above, women (3.3%) have


NSW COVID cases soar

Victoria has recorded another 1189 new COVID cases and six deaths: By comparison, NSW has recorded 804 new cases and one death: The next chart plots daily cases across both jurisdictions and shows cases surging in NSW: The same applies to active cases, which have increased sharply in NSW: Hopitalisations are also rising across both


ScoMo ignores Omicron to reboot mass immigration

Last month, the Morrison Government announced that Australia will re-open its international border to overseas students, skilled visa holders and working holiday makers from 1 December, with Home Affairs Minister Karen Andrews expecting that at least 200,000 migrant workers will arrive in Australia by July 2022: “We are working on a figure of 200,000, it


Roy Morgan unemployment stuck at 9.2% in November

Roy Morgan Research has released its unemployment estimate for November, with unemployment remaining steady at 9.2% despite a 178,000 increase in jobs. The underemployment rate also fell by 0.3% to 8.3%: According to Roy Morgan: 1.33 million Australians were unemployed in November, up 10,000 on October (9.2% of the workforce), and 1.21 million Australians were


Can Australia’s universities evolve? Nope

Associate Professor Salvatore Babones has released a new book entitled “Australia’s Universities: Can They Reform?”, which is a follow-up to Babones’ influential 2019 CIS paper “The China Student Boom and the Risks It Poses to Australian Universities”. The book shines a bright light on the political economy of the Australian higher education system, exploding the


RBA Chart Pack

The RBA released its monthly chart pack this week and its always a fun flirtatious flick-through! Let’s look at inflation first, which is either transitory or out of control depending on your point of view: The US and Europe are seeing big changes in inflation as monetary policy to combat the COVID pandemic combined with


Australia’s vaccine rollout quickens as Pfizer pushes 3rd dose

As concern about the Omicron variant lessens on risk markets, health authorities are moving from cautious to hopeful even as the initial scientific studies has not yet provided a clear-cut answer to its efficacy. Pfizer has indicated that a third booster shot of their vaccine should provide a substantial increase in antibodies capable of fighting


Morrison sticks his neck out on OMICRON

The Prime Marketer is out this morning with a press conference where Scomo is pushing the “don’t worry about case numbers, worry about the hospitals” line (which is a good risk management metric to be fair): Today we can announce there have been more than 40 million doses of vaccine delivered in Australia. That is a


CBA previews the MYEFO

“By Gareth Aird, head of Australian economics at CBA:” ■ The 2021/22 Mid‑Year Economic and Fiscal Outlook (MYEFO) is scheduled to be handed down on 16 December. ■ The MYEFO will show an improved Budget bottom line along with upgraded economic forecasts. ■ Our point estimate for the revised underlying cash deficit in 2021/22 is


ABS: Payroll jobs and wages are flatlining

Not much happening on the wage front according to the ABS with the latest payroll and wages estimates indicating flat wage growth and a pause in jobs: Annualised the numbers look more solid, although looking through the geographical distrubution, none of it is coming out of NSW: Meanwhile, male jobs are lagging behind female: Panic