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 Leith van Onselen The Productivity Commission’s recent Migration Intake into Australia report called on the Australian Government to develop a national population policy that focuses on maximising the living standards of the incumbent population and their future offspring: RECOMMENDATION 3.1 The Australian Government should: • develop and articulate a population policy to be published
By Leith van Onselen Back in April 2014, the hospitality industry demanded that access to so-called ‘skilled’ temporary 457 visa workers be relaxed to fast-track thousands more foreign chefs, cooks, waiters and bar staff: The department is evaluating an industry request to fast-track thousands more foreign chefs and cooks on temporary work visas. Separately, the
By Leith van Onselen The Australian Bureau of Statistics yesterday released its overseas short-term arrivals and departures figures for July, which continued to show a trend rise in the number of inbound tourists, with Chinese arrivals continuing to boom. The number of short-term visitor arrivals rose 23.1% in July in original terms, whereas short-term resident
By Leith van Onselen From today’s ABS Household Income and Wealth survey for 2015-16 comes yet more evidence that real household income has fallen over recent years: According to this survey, mean equivalised household disposable income, which measures material living standards by adjusting household disposable income for the household’s ‘needs’, fell by 1.9% in the
Via UBS comes more on the misleading NAB survey: Aug business conditions rise to a booming post-GFC high of +15.2 (after +14.1) NAB’s survey of business conditions rose further to a booming +15.2 in Aug-17 (UBS: ‘flat’, mkt: nf, average since 1997 of +5.2), the highest since 2007, albeit up only marginally an already strong
By Leith van Onselen From today’s ABS Household Expenditure Survey for 2015-16: More than half the money Australian households spend on goods and services per week goes on basics – on average, $846 out of $1,425 spent – according to the 2015-16 Household Expenditure Survey (HES), released today by the Australian Bureau of Statistics (ABS). “We
Sure looks like it: The independent board overseeing Australia’s $5bn infrastructure agency is again under fire over potential conflicts of interest that now involve half of its directors as a result of mining industry links. Fresh potential conflicts involving two Northern Australia Infrastructure Facility directors, including its chair Sharon Warburton, emerged after the body was
From Bill Evans at Westpcc: • The Westpac Melbourne Institute Index of Consumer Sentiment rose 2.5% to 97.9 in September from 95.5 in August. The consumer mood remains downbeat with September marking the tenth consecutive month that pessimists have outnumbered optimists. Pressures on family finances, concerns around interest rates, deteriorating housing affordability and rising energy
By Leith van Onselen The June quarter national accounts was a sobering experience for Australian workers. According to the ABS, the average compensation per employee fell by 0.2% in the year to June 2017 – the lowest growth on record: In a similar vein, separate per capita wages & salaries data registered an 0.6% decline
By Leith van Onselen The Australian Bureau of Statistics (ABS) yesterday released visitor arrivals and departures data for the month of July, which registered another lift in annual net permanent and long-term arrivals, which remains at turbo-charged levels. In the year to July 2017, there were 776,790 permanent and long-term arrivals into Australia – up
Cross-posted from The Conversation: Within the political class there is a low level moral panic about low wages growth. The irony is that those lamenting this situation are simply witnessing the ultimate outcome of policies they have long advocated. While Australia still has systems like Industrial Tribunals and Awards – given how they interact with
The NAB survey is out: It is probably too early to read much into the drop in confidence this month. While external shocks, such as the escalating tensions with North Korea, may have had some impact, we have actually asked for the first time in the Survey what firms see as being the most influential
So you want know what drives the bubble? Make sure you’re sitting down because here it is, cross-posted from the always excellent Jonathon Mott at UBS: Work Undertaken Between 7th of July and 4th of August 2017 UBS Evidence Lab conducted an online survey of 907 Australians who had recently taken out a mortgage to buy
By Leith van Onselen ABC Media Watch last night ran a segment deriding Dick Smith for claiming that The ABC is biased on the population (immigration) debate and is disinterested in airing dissenting views that running a mass immigration scheme more than twice as large as the historical average might actually be bad for the
By Martin North, cross-posted from the Digital Finance Analytics Blog: Digital Finance Analytics has released the August 2017 edition of our Household Finance Confidence index, which uses data from our 52,000 household surveys and Core Market Model to examine trends over time. Overall, households scored 98.6, compared with 99.3 last month, and this continues the
Via UBS: Q2 GDP bounced 0.8% q/q, but only 1.8% y/y, in line with our long-held view Q2 real GDP bounced 0.8% q/q, but after only 0.3%, & held a post-GFC low 1.8% y/y, ~in line with our long-held forecast. Putting aside q/q volatility, 1H-17 averaged 2¼% a.r., a bit below the 2½% trend in
By Leith van Onselen Apparently, Australia’s future productivity, income and jobs will be driven by piling tens-of-thousands of extra people into Australia’s cities each year selling services to each other. From The Australian [my emphasis]: Both Treasury and the Reserve Bank are looking to the services sector and business services in particular to drive Australia’s
By Leith van Onselen The Australia Institute’s chief economist, Richard Denniss, has started an excellent new podcast entitled The Lucky Country, which this week included a segment (from 23.00) discussing Dick Smith’s campaign to lower Australia’s immigration intake back to the historical level of 70,000 people a year, while at the same time increasing the
By Leith van Onselen The biggest unicorn in the May Budget was the laughable assumption that Australian workers would enjoy a wages explosion over the forward estimates: With last month’s wages growth data for the June quarter badly disappointing, Treasurer Scott Morrison tried to put lipstick on a pig, claiming wages were in fact growing
By Leith van Onselen Federal Opposition leader, Bill Shorten, has tapped into the perceived voter angst surrounding the privatisation of public assets, claiming that former Victorian Premier Jeff Kennett’s privatisation of the state’s electricity network has lead to rising electricity prices. From The Australian: “Anyone who has been to Victoria and lived in this state
The AFR is excited: The infrastructure boom could last longer than the mining boom, engineers have forecast as rising job vacancies on hundreds of projects, worth more than $100 billion around the country push up engineering and construction wages. “The jobs data is as clear as a bell, we’re on the up,” said Brent Jackson,
By Leith van Onselen The latest Roy Morgan Research (RMR) unemployment estimate for August registered a 0.8% rise in the unemployment rate over the month but a 0.2% decline over the year, with underemployment also rising significantly: Below are the key points from the release: In August 1.324 million Australians were unemployed (10.2% of the
Via The Australian: The number of new apartments sold had dropped and prices had fallen about 10 per cent over the past six months, the founder of Meriton Group told The Australian. “The falling prices will have a big impact on the economy,” said Mr Triguboff, who called on the federal and state governments to review
By Leith van Onselen Seeing as Fairfax’s chief economics correspondent, Ross Gittins, has seemingly been gagged by his employer from entering the immigration debate, and given the relevance to the Dick Smith Fair Go campaign, find below a 2015 video by Ross Gittins expertly articulating why mass immigration makes ordinary Australians worse-off, implicitly backing today’s
Dalian is firm today but going nowhere really: AUD is rampaging towards 81 cents: Which is capping Big Iron: And Big Gas: Big Gold is mixed: Big Sleazy is at new lows: Big Spruik is mixed: The ASX is at the brink again of its descending triangle: The rampaging AUD may push it off…
