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.


Are Chinese about to desert Australia’s unis?

By Leith van Onselen Back in December, the higher education program director at the Grattan Institute, Andrew Norton, warned that Australia’s universities have become dangerously reliant on Chinese students. This warning came after a near doubling of international student arrivals over the past five years: Many of whom have come from China: Which has helped drive


Credit Suisse: Labor Government positive for wage growth

By Leith van Onselen Credit Suisse has warned that a Shorten Labor Government would result in “cascading” wage increases and an increase labour’s share of national income. From The Canberra Times: “We believe the ALP’s package of employment and industrial relations policy reform would represent a transformative shift in the bargaining power of labour in


Why Labor must ban LNG imports

Australians are paying more for their gas than the Japanese again. Asian spot prices are today at approximately $9Gj. On the east coast of Australia they are approximately $10Gj. Under the terms of the Australian Domestic Gas Security Mechanism (ADGSM) the local export net-back and spot price should now be $7Gj. Though we should also


Low-wage temporary migrants flood Sydney and Melbourne

By Leith van Onselen The ABS yesterday released a report entitled Insights from the Australian Census and Temporary Entrants Integrated Dataset, 2016, which revealed that there were 1,500,409 temporary residents in Australia on Census night, comprising: 41% Special Category (New Zealand citizen) visa holders – 664,957 persons (634,250 residents and 30,705 overseas visitors). 30% Student


Mining lobby cries wolf at phantom labour shortages

By Leith van Onselen Back in December, Western Australia’s mining sector attempted to soften-up the government to open the floodgates for temporary foreign workers to fill invented ‘skills shortages’ because of reported rising wage costs and an imaginary lack of workers. From The West Australian: A growing skills shortage is threatening to derail billions of dollars


SA rejoice: You’re failing to attract migrants

This is totally perverse from the ABC: South Australia is losing a very important battle — to win the hearts and minds of those migrating to Australia. Premier Steven Marshall wants to gain some ground by attracting skilled migrants to the state rather than Victoria and New South Wales, as the State Government holds a


Longview Economics: Australian “recession likely” in 2019-20

By Leith van Onselen Following on from Gerard Minack’s report contending that “a recession in Australia is becoming more likely”,  Longview Economics has delivered a similar verdict: Summary & Conclusion: Excess in the Australian housing market has been widely discussed by investors and commentators for a number of years. Underpinned by cheap money, house prices


RBA throws another economist under the deflation bus

By Leith van Onselen With Australia’s consumer economy facing massive headwinds from the plummeting housing market and the likely reversal in the household savings rate: The RBA’s head of economic analysis, Alexandra Heath, has reached once more for the wage growth unicorn, claiming that rising wages growth will offset any fall in household consumption. From The


Rate cut talk lifts consumer sentiment

Via Westpac: Sentiment has recovered after a shaky start to the year. The previous survey in January had shown a sharp pull back, the Index dipping into pessimistic territory for the first time since late 2017. The February lift takes the Index back into ‘cautiously optimistic’ territory. While that may indicate some of last month’s


Gittins drags RBA towards depression economics rate cut (or vice versa)

Missed this earlier in the week. Ross Gittins is helping lift Australian economic discourse for once: [A rate cut] isn’t [imminent]. It isn’t because, as he made plain in a speech on Wednesday – and reiterated in the statement on monetary policy on Friday – he remains confident the economy has slowed a bit, but no worse. His revised


Transurban continues to privatise gains from mass immigration

By Leith van Onselen While residents of Sydney and Melbourne are suffering from crush-loaded roads, trains, schools, hospitals, and prisons, as well as hideously expensive housing, toll road company Transurban yesterday reported a massive lift in toll road revenues as Australia’s mass immigration ‘Big Australia’ policy continues to feed it customers. According to Transurban: Average


UBS doubles house price crash despite rate cuts

And quite rightly. Mortgage finance is getting slaughtered: Investors -28% y/y; but owner-occupiers also -16%; while developers weaken The accelerating fall in home loans shows tighter credit is playing out. Looking ahead, while the Royal Commission didn’t make material changes, we downgrade our long-held forecast peak-to-trough drop in home loans from ‘20% with risk of


ANZ consumer confidence tanks

I don’t publish it often but today is noteworthy as the ANZ weekly consumer confidence number tanked 3.4% to 114 continuing its downwards trend. From ANZ: Consumer confidence took a beating last week, most likely on the back of the RBA’s downgrade to its economic outlook. The fall reversed all the gains and then some since


Owner-occupied and investor mortgage lending crashes

By Leith van Onselen The ABS has replaced its housing and lending finance series with a singe new Lending to households and businesses release, which shows that lending to households has crashed on the back of plummeting owner-occupied and investor mortgage lending: According to the ABS: In seasonally adjusted terms, lending commitments to households fell 4.4%


NAB business survey confirms economic stall

There was always going to be a little bounce back from the December crash: Business conditions saw a moderate rebound in January after falling sharply in December. Some improvement was likely given the difficulty in addressing seasonality around the Christmas/New year period but even after this partial reversal, conditions and forward orders continue to trend


Bloomie: Aussie jobs market has already turned down

Via Bloombergo today: Signs are emerging that a two-year hiring burst that cut Australian unemployment by almost a percentage point is starting to cool. Labour market resilience has been central to the Reserve Bank optimism, but the prospect of slower hiring and a jobless rate drifting higher would make it tougher to maintain its “glass half


Sydney’s immigration-crushed west faces dystopian future

By Leith van Onselen Western Sydney is the epicentre of the city’s working class. It is a prime dumping ground for the federal government’s mass immigration ‘Big Australia’ program. And it has become a virtual “special economic zone” where wages can be shredded with impunity by the wealthy owners of capital living in the East.


Household financial confidence dives deeper into abyss

Digital Finance Analytics has released its Household Financial Confidence Index results for January, based on a survey of 52,000 households, which revealed that confidence has fallen to the lowest level in the survey’s five year history: According to Martin North: Looking at the results by property segments, we see a fall in confidence among property


Minerals Council attacks ALP’s labour hire crackdown

By Leith van Onselen The Minerals Council of Australia (MCA) has attacked Labor’s planned crackdown on labour hire companies, claiming it will reduce its flexibility and make it less globally competitive. From The AFR: The Minerals Council of Australia is urging Labor to temper a planned crackdown on casualisation and labour hire, warning that the


UBS folds: RBA to cut interest rates as unemployment spikes

George Tharenou at UBS has finally joined MB: Recent data clearly shows that the pace of growth is slowing, with weakness in retail, car sales, resi & non-resi approvals, business surveys, home loans & credit. Indeed, the only major ‘positive’ data print in the last month has been unemployment, & while jobs growth remains solid


Credit Suisse: Much deeper RBA downgrades to come

Via Damien Boey at Credit Suisse: In terms of the sources of downgrades, the Bank has slightly lowered its outlook for consumption and cut its forecast for residential investment. But it still expects business and public capex to do the heavy lifting. Some other interesting comments from the SoMP include: The RBA’s view that offshore


Tech oligarchs demand MORE migrants

By Leith van Onselen In 2017, published an illuminating article profiling a skilled Australian IT worker that had arrived home from working as a project manager at Amazon’s Seattle campus but could not gain employment despite hundreds of job applications: AT 25 years old, James was living a tech-head’s dream. The university graduate had been