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.


Infrastructure Australia: Population pressures impossible to fix

By Leith van Onselen Yesterday, Infrastructure Australia released a new report, entitled Planning Liveable Cities, which lambasted our governments’ intractable failure to cope with the last 15 years of extreme population growth. The report identifies six holistic planning failures afflicting “Australia’s largest cities as they grow”: Finding 1: Infrastructure delivery is struggling to keep pace with


ABS: Half of Australia’s employment growth ‘bullshit jobs’

This is not a picture of economic strength, via the ABS: The number of jobs that where filled in Australia increased by 0.3 per cent in the September quarter of 2018, with around half of the increase being secondary jobs, according to new labour market insights released by the Australian Bureau of Statistics (ABS). Nearly


FIRE vampire drains more blood from Aussie economy

By Leith van Onselen Last week’s national accounts release for the September quarter confirmed that Australia’s FIRE economy – Finance, Insurance and Rental, Hiring & Real Estate Services – has recommenced bleeding its host, with its share of the Australian economy rebounding, rising marginally to 11.7% albeit still lower that the June 2017 high of


Fair Work mass raids poor old Melbourne cafes

Via The Australian: Fair Work inspectors are conducting surprise visits at dozens of restaurants and cafes in popular Melbourne city dining strips today following concern about the widespread underpayment of workers. Inspectors are currently in Degraves Street and Hardware Lane, speaking to business owners, managers and employees to check that workers are being paid correctly.


Property investor sentiment crashes

Via Martin North today: DFA has released the final dimension from our household surveys to end November 2018, zeroing in on financial confidence. As is perhaps predicable, the overall index fell again, down to 87.8, well below the neutral setting, and close to the record low we measured in 2015. Property owning household segments continue


Lawyers sound ‘death knell’ for Fair Work Commission

As we know, Aussie households are mired in an historic income recession: But it’s not enough for the Coalition, who last week stacked the board of the Fair Work Commission (FWC) with business interests, thus ensuring that it remains a ‘toothless tiger’: The Australian can reveal that Jobs and Industrial Relations Minister Kelly O’Dwyer has ­appointed


Coalition opens new low skilled immigration rort pathway

By Leith van Onselen Let’s recall the damning indictment of Australia’s defacto low-skilled immigration system in the book entitled The Wages Crisis in Australia, which was released last month by a group of labour market academics: Official stock data indicate that the visa programmes for international students, temporary skilled workers and working holiday makers have tripled


Australian households’ lost decade rolls on

By Leith van Onselen Australia’s production, as measured by real GDP, continues to diverge wildly from the growth (or lack thereof) in ordinary Australian’s living standards. To illustrate why, I have once again deflated three measures of the domestic economy, as provided in the June quarter national accounts (released last week), by the ABS’ population


Mirabile dictu: Crikey discovers the income recession!

Mirabile dictu, Crikey’s Bernard Keane has finally discovered the real problem: …while much of the political and media class were obsessing about some asylum seekers last week, our understanding of the economy changed significantly in the wake of the September quarter GDP figures and the reaction of the Reserve Bank about where interest rates might


Whyalla births green steel export powerhouse

Yes, you read that right, from The Australian: British billionaire industrialist Sanjeev Gupta, backed by heavyweight Chinese investors, plans to build one of the world’s largest steel plants in Whyalla, 380km north of Adelaide. Flanked by Scott Morrison, Bill Shorten and South Australian Premier Steven Marshall at this morning’s announcement, Mr Gupta said construction of


Chinese tourists and students abuse Australia’s protection visas

By Leith van Onselen The great Australian immigration rort has hit a whole new level of ridiculousness today, with Chinese tourists and international students helping to drive an absurd 311% increase in asylum seeker claims. From The ABC: Key points: People claiming to be Christian, LGBTI and love children are among those seeking asylum All


Scanlon Foundation hoisted upon own immigration petard

By Leith van Onselen I noted last week how the Scanlon Foundation’s mouthpiece, professor Andrew Markus, rubbished most recent opinion polling, from a variety of sources, supporting lower immigration into Australia, including: Australian Population Research Institute: 54% want lower immigration; Newspoll: 56% want lower immigration; Essential: 54% believe Australia’s population is growing too fast and


Coalition gives workers one last kick in nuts as it exits

As we know, Aussie households are mired in an historic income recession: But it’s not enough for the Coalition. It wants even less money for workers, to wit: The Australian can reveal that Jobs and Industrial Relations Minister Kelly O’Dwyer has ­appointed six new deputy presidents — including four who have worked directly for employer groups


Election investment freeze begins

It’s a long way out but not soon enough, via The Australian: Two of Australia’s biggest energy companies say they will delay investment in new generation capacity that could help drive down prices until there is more certainty around the direction of policy, after Scott Morrison’s “big stick” legislation to break up retailers who charged


Real household disposable income also continues to fall

By Leith van Onselen The September quarter national accounts was another shocker for Australian households. According to the ABS, the real average compensation per employee fell another 0.7% in the year to September 2018 to be 4.7% lower since March 2012: Yesterday, the Reserve Bank of Australia (RBA) also released real household disposable income (HDI)


Australian construction PMI pukes lower

Goodbye Botox Boom: Construction sectors: Engineering construction (54.0 points trend) was the best performing sector in November, recording its 21st consecutive month of growth on the back of on-going strength in publicly funded investment in large-scale infrastructure projects. At the other end of the scale, apartment building activity (31.0 points trend) contracted for an eighth


WA economic bust gets second wind

By Leith van Onselen Western Australia’s economy appears to have taken another leg down, with yesterday’s national accounts recording a second consecutive quarterly decline in final demand, falling by 0.3% in the September quarter – the third consecutive decline: Whereas annual final demand fell by 0.8%: At the same time, Perth dwelling values have taken


Australian mortgage stress hits new all time highs

Via Martin North: DFA has released the November 2018 mortgage stress and default analysis update. Across Australia, more than 1,015,600 households are estimated to be now in mortgage stress (last month 1,008,000). This equates to 30.9% of owner occupied borrowing households. In addition, more than 22,500 of these are in severe stress. We estimate that


Migrants only want to move to Melbourne and Sydney

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


Farcical health star ratings system gets facelift

By Leith van Onselen Over the past few years, I have called for an overhaul of Australia’s dietary guidelines, including Australia’s Health Star Rating System, which has too often ignored the prevalence of sugar while demonising natural saturated fats. I have also criticised Australian dieticians’ staunch defence of existing failed dietary guidelines that promote a


Trade surplus falls, misses expectations

By Leith van Onselen The Australian Bureau of Statistics (ABS) today released trade data for the month of October, with Australia’s trade surplus falling to $2,316 million in October from $2,709 million in September: The result missed expectations of a $3 billion surplus. Below is the time series chart: The below chart tracks the growth