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.

9

Tourism and aviation industries demand government support

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

13

Victoria faces $12b economic hit from new lockdown

With Victoria accounting for around one quarter of the nation’s economy and Melbourne making up 20% of the nation’s population, Commonwealth Bank head of Australian economics, Gareth Aird, says the six-week lockdown in Melbourne is likely to reduce Australia’s GDP growth by about 1% in the September quarter. While the economic cost of the lockdown

26

RBA holds for July

by Chris Becker At its latest meeting the Reserve Bank has held its cash rate at the record 0.25% low. Australian dollar flitted immediately with the 69.50 level but is coming back after tapping out just below the 70 handle earlier today (and in time with my “Aussie could go to 80cents” post!) Reserve Bank

6

Jacinda Adern opens door to Trans-Tasman travel bubble

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

45

Hospitality industry cries “skills shortage”

Despite record unemployment, bosses in the hospitality industry claims they are struggling to fill vacant positions, often having no applicants for advertised jobs. According to the above interview, the hospitality industry is highly reliant on temporary migrant labour and as many of 200,000 of these workers have left Australia due to COVID-19. This has left

13

Australia’s services economy dies

The Australian Industry Group (AIG) today released its Performance of Services Index (PSI), which shows that Australia’s services sector is dead as a dodo: According to AIG, the PSI fell “0.1 points to 31.5 points in June 2020 (seasonally adjusted), indicating another serious contraction in activity in June and at a similar pace to May.

37

Abul Rizvi: Australia won’t meet immigration forecasts for a decade

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

33

History repeats as virus panic strips shops bare

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

68

Brace for mass restaurant closures

According to Alan Kohler, the requirement that diners occupy four square metres each under current regulations in Sydney and Melbourne, alongside average rents for restaurants in those cities costing $3,000 a year per square metre, means that restaurant-goers would need to spend $300 a head for the average restaurant to break even. This suggests that

64

Victoria’s ponzi economy collapses

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

19

Terry McCrann: “Abandon the Big Australia population Ponzi”

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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Links 7 July 2020

Global Macro / Markets / Investing: Global tourism stands to lose up to $3.3 trillion from COVID-19 – Reuters Fitch Ratings downgraded a record 33 sovereign ratings – Economo World’s Largest Pension Fund Loses $165 Billion in Worst Quarter – Yahoo Americas: Walmart is transforming 160 store parking lots to drive-in movie theaters this summer.

17

Half of Virgin’s staff face axe

Less that two weeks after Qantas announced that 6,000 jobs (20% of its workforce) would be cut, and a further 15,000 employees would remain stood down until further notice, Virgin Australia’s new owner, Bain Capital, is expected to axe around half of Virgin’s 9,000 strong workforce: Pilots, crew and non-operational staff and workers at the

43

AMA: Don’t ease COVID-19 restrictions

Australian Medical Association President Tony Bartone is urging states to pause any further easing of restrictions until Victoria has gained control over recent coronavirus outbreaks. Mr Bartone said the recent surge in virus cases is a prime example of the rapidly changing nature of the pandemic: “So it’s an appropriate time or message at the

3

Australian job ads continue to improve

Callam Pickering, economist at global jobs site Indeed, has release his weekly job postings update, which shows that new job postings – i.e. those on Indeed AU for seven days or less – are now tracking only 14% below their pre-COVID level: A month ago, new job postings were tracking 46% lower. Moreover, total job

12

Australia’s skilled visa system temporarily suspended

COVID-19 continues to put a knife through Australia’s immigration system, with the the skilled visa system to remain temporarily suspended until further notice: Department of Home Affairs has advised the states and territories to put their programs on hold until further notice… “The government is closely monitoring migration and visa settings to ensure they are

72

Victoria’s COVID-19 infections turn exponential

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

47

NSW shuts border with Victoria

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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Blame Victorian Government for COVID-19 tsunami

It was another shocking weekend of COVID-19 infection in Victoria, with 182 new cases recorded across the state: Victoria now accounts for 96% of Australia’s active cases: Victoria’s COVID-19 transmission has now topped the March peak: And this is being driven by a handful of local council areas primarily in the city’s north and west: