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.
Via the CBA Flash PMI: The Commonwealth Bank Flash Services Business Activity Index is designed to provide a timely indication of changes in business activity in the Australian service sector economy as a whole. Readings above 50.0 signal an improvement in business activity on the previous month, while readings below 50.0 show deterioration. Services business
By Leith van Onselen While Australia may currently be a preferred destination for international students, as evidenced by nearly half a million student visas on issue at the end of 2018: Competition for international students is heating-up, both from competitor countries and the source nations. For example, the Canadian Government is planning to expand its
Via Bill Evans at Westpac: The minutes of the April monetary policy meeting of the Reserve Bank Board have provided the clearest signal yet that the Bank would be prepared to cut the cash rate. Firstly, the final section “Considerations for Monetary Policy” states “a lower level of interest rates could still be expected to
Not that it is gospel or anything but not completely useless either: The Department of Jobs and Small Business’ Monthly Leading Indicator of Employment (the Indicator) has fallen for the twelfth consecutive month in April 2019, following a rise of eight consecutive months. The Indicator’s decline this month is due to falls in the US
By Leith van Onselen Shadow industry minister Kim Carr has flagged the possibility of imposing temporary import quotas on certain products if it wins the federal election, in order to prevent low-cost imports from flooding the domestic market. Carr has also expressed concern that the Trump administration’s tariffs on steel and aluminium imports could eventually
By Leith van Onselen Over the past year or so, I have ridiculed the new found push by Coalition politicians towards decentralisation, noting that this is a pipe dream based on the settlement pattern of new migrants, which have overwhelmingly chosen to flood the major cities. My view was initially based primarily on data from
Via Westpac: • The six month annualised growth rate in the Westpac– Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, rose from –0.54% in February to –0.09% in March. Despite this recent lift the Index has still registered four consecutive months
By Leith van Onselen The latest Roy Morgan Research (RMR) unemployment estimate for March jumped 1.3% to 10.6%, and surged 2.0% over the year: Labour underutilisation also surged to 20.6%. Below are the key points from the release: Australian unemployment increased to 1.49 million in March (10.9% of the workforce) with an additional 1.32 million
By Leith van Onselen MB has gone to great lengths to expose the crash in real employee incomes that has taken place this decade, as evident by the circa 5% fall in real average employee compensation since March 2012: The 0.5% real fall in average weekly earnings since May 2013: And the 0.3% real decline
By Leith van Onselen Infrastructure Victoria has released a incredibly superficial propaganda report, entitled Growing Victoria’s Potential, spruiking the benefits that could arise from the state’s manic population growth, which is expected to see Melbourne’s population balloon to 8 million people by 2051. Below are key extracts from the Executive Summary along with some key charts:
By Leith van Onselen Australia’s migrant slave economy continues to be exposed. After last week labelling “outrageous” a Fair Work Commission ruling that fruit pickers should be entitled to overtime if they work excessive hours, it has now been revealed that farmers are choosing to employ migrant workers because they are easier to exploit. From 7News:
By Leith van Onselen Ross Gittins has done a good job today destroying the Australian Treasury’s perennially heroic Budget forecasts, which forever project an imminent ‘future boom’ for the Australian economy: …the longer Treasury dwells in the land of hope-springs-eternal, the more it gives its political masters the budget numbers they crave: ones showing the
From Roy Morgan Research: In the December quarter 2018, the gross personal wealth (assets) of Australians including owner occupied homes, stood at $9,784 billion. This represents a drop of $512 billion or 5.0% from the September quarter when it was $10,296 billion and is now at the lowest level recorded throughout 2018. Net wealth (after
By Leith van Onselen Last year, the chair of the Migration Council of Australia (MCA) and big business lobbyist for the Australian Industry Group (AIG), Innes Willox, penned an article in The Australian claiming that “now is not the time to cut migration” because of “skills shortages” [my emphasis]: Australia does not have a population
By Leith van Onselen I’ve read some fanciful immigration propaganda in my time, but today’s effort by Simon Kuestenmacher in The Australian is right up there in the fake news stakes. Kuestenmacher is the Director of Research at The Demographics Group and is described as “a rising star in the world of demography”. The Demographics Group is
By Leith van Onselen Back in December, the Coalition’s controversial $840 million Youth-Jobs PaTH program – to prepare, trial and ultimately hire young Australians – was ridiculed at Senate estimates for its abysmal failure to shift younger Australians from welfare into work: The new figures show the $840 million program is falling short of its
This is nicely timed for Labor. From the OECD today: Governments need to do more to support middle-class households who are struggling to maintain their economic weight and lifestyles as their stagnating incomes fail to keep up with the rising costs of housing and education, according to a new OECD report. Under Pressure: The Squeezed
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released visitor arrivals and departures data for the month of February, which posted surging permanent and long-term arrivals, which broke records on both a monthly and annual basis. In the year to February 2019, there were a record 844,800 permanent and long-term arrivals into
By Leith van Onselen The massive boom in international students, which has risen by around 200,000 over the past five years: Has driven a chronic shortage of student accommodation across the major capitals, according to Savills’ Q1 report into student accommodation. From The AFR: At the beginning of 2019, there were 87,000 student accommodation beds
By Leith van Onselen Dr Bob Birrell and Dr Katharine Betts from the Australian Population Research Institute have released a new research paper examining Australian voters’ attitudes towards immigration, which is based on a random survey of 2,029 voters conducted from October/November 2018. Below is the Executive Summary along with the key charts: Previous research
From Martin North, principal analyst at Digital Finance Analytics: DFA has released the March 2019 Household Financial Confidence Index, which is based on our rolling 52,000 household surveys. The index reached a new low this past month as the weight of issues on many household’s shoulders pile up. The index fell to 86.1, well below
From MHJ: And FLT: And S&P: Australian corporates are vulnerable to a confluence of domestic risks. This is in contrast to past slowdowns that have been associated with global cycles, often via the resource sector. That’s according to S&P Global Ratings today in an article, titled, “Australian Corporates Vulnerable To A Thrifty Consumer”. “Australian households
S&P Global has released an excellent new report, entitled Australian Corporates Vulnerable To A Thrifty Consumer, which warns of the impending household bust: Australian consumer sentiment is listless. But for Australian corporates it has hardly mattered. A migration boom and consumers’ penchant to live beyond their means have underwritten corporate profitability. However, deteriorating household conditions
Westpac monthly consumer sentiment: • The Westpac-Melbourne Institute Index of Consumer Sentiment rose 1.9% to 100.7 in April from 98.8 in March. The survey was conducted over the period April 1 to 5 and captures consumer reactions to the Federal Budget. While the month to month rise in sentiment is fairly muted, the survey detail
By Leith van Onselen Last month, the Migrant Workers’ Taskforce released its final report, which found that “wage underpayment is widespread and has become more entrenched over time”, with as many as half of all migrant workers exploited. Prevalent among the exploited are international students: Underpayment of migrant workers is certainly not a new problem.
Via the ABC: Tens of millions of dollars will be offered to the world’s automotive giants to resurrect the Australian car industry, centred around manufacturing electric and hydrogen-powered cars, under a yet-to-be unveiled Labor plan. The ABC has learned the Labor Party has been quietly working on the plan for the past couple of years,
The IMF was out with its new World Economic Outlook overnight and the news for Australia is steeper growth downgrades than just about anywhere else: 2.1% for 2019 is miles below the RBA’s and Budget’s 2.75% (though the latter is for 2019/20). I will add that level of growth will not hold unemployment. And what
Sure looks like it. Were we in a normal commodity cycle, Australia would be looking down the barrel of disaster. As house prices plunge, the global economy is fading too. A global recession is quite possible and, more to the point, the weakness has been driven by a slowing China. Chinese property construction is weakening
By Leith van Onselen The New York Times’ Neil Irwin has penned an incredibly superficial article hailing Australia’s ‘miracle’ economy, arguing that the rest of the world could learn from our purported success: I had flown 16,000 miles not to study economic malaise, but its opposite: the remarkable resilience of the Australian economy, which has
It appears Labor is revving up to cut temporary visa workers, via Craig Emerson at the AFR: Add to the 900,000 temporary work visa holders the number of illegal workers in Australia and the total reaches almost 1 million. The Fels report found underpayment of wages to these temporary workers is rife, citing estimates of
