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.
It appears that this insane stimulus package meets my worst fears. At the AFR: The total size of the package is $17.6 billion which is designed to be spent over the next four to six months, delivering an economic boost equivalent to $22.9 billion or 1.2 per cent of GDP and stopping the June quarter
NAB has named Australia’s tourism and education sectors as the areas of the economy most likely to be hardest hit by the coronavirus pandemic: “For Australia, the immediate impact is likely to be on exports, with travel restrictions weighing on the education and tourism sectors,” NAB said. China was Australia’s biggest source of international visitors
Not much fun. Parabolic spread: Moving fast: Thanks Italy: The dead mount: Worrying mortality rate: Still winter dominant but Summer making a strong run: Thanks to ponderous governments like our own.
Via The Australian: Small and medium-sized businesses employing eight million workers will be given up to $25,000 in cash, and instant asset writeoffs will be extended to 3.5 million businesses, under a stimulus package worth almost $18bn. Pensioners will also be the key beneficiaries of a household cash payment to be announced on Thursday, under
The entire border. Coast-to-coast. Nobody but Australians in and out. And if they are returning then they must go into three weeks quarantine with jail if violated. Why? Because there is no point doing half measures with COVID-19. If the virus gets in then it is going to wreak havoc. The entire private sector, and
The latest credit aggregates data from the RBA revealed that both personal and mortgage credit growth has collapsed, with personal loan growth declining by 5.0% in the year to January 2020 and mortgage growth tracking at just 3.1% – just above lowest level in recorded history: The decline in mortgage credit growth comes at the
Welcome to Australia’s ScoMo-prime housing bust. Here’s the blowoff: Inspired by the Realty PM, who promised rising house prices forever and, to ensure it, guaranteed the deposits of sub-prime FHBs. Needless to say, he got them very excited, driving up auction clearances: Sending house prices back to the moon: And driving the average new loan
The Australian Bureau of Statistics (ABS) has released its experimental labour market accounts for the December quarter, which reveals that healthcare and social assistance continued to drive jobs growth in calendar year 2019, with the number of jobs in this industry surging 5.3% year-on-year: Much of this latest increase can be attributed to the ongoing
Via FTAlphaville: In the first of what we imagine will be many targeted fiscal policies to alleviate the economic stress from the Coronavirus panic, news from quarantined Italy this Tuesday morning. Via the FT’s Miles Johnson: Italy’s deputy finance minister has said the government will suspend mortgage payments and other household bills across the entire country
While ordinary Australian households tread water financially, experiencing zero growth in household disposable income over more than seven years: Australia’s ultra-wealthy population is projected to balloon further over the next five years, according to the Knight Frank Wealth Report: The data shows Australia’s ultra-high-net-worth-individual (UHNWI) population will rise to 4,881 by 2024, up from 3,796
Via The Guardian: The University of Tasmania will slash hundreds of courses from its curriculum as part of a major overhaul driven in part by an “overreliance on China” and the impact of the coronavirus. On Tuesday, the university’s vice chancellor Rufus Black told staff the university was “facing sustained headwinds” to being sustainable, and would cut
The Australian’s Adam Creighton has taken direct aim at Australia’s rent-seeking, bloated university sector, calling on policy makers to bring them to heel: For waste and perverse incentives it’s hard to go past the nation’s 39 universities… whose swollen bureaucracies have become ground zero for highly paid BS jobs in “strategy, engagement, culture” et cetera.
John Daley and Matt Cowgill have penned a thoughtful analysis of the coronavirus on the Grattan Institute’s Blog, arguing that the Australian Government must take decisive action now to limit social gatherings in order to slow the spread of the virus and prevent it from becoming a full blown pandemic: Australia currently has 100 diagnosed
Via Westpac: • The Westpac-Melbourne Institute Index of Consumer Sentiment fell 3.8% to 91.9 in March from 95.5 in February. The worsening coronavirus outbreak and associated rout in financial markets have had a major impact on sentiment this month. The Index has hit a five year low. In fact it is the second lowest level
A glimpse inside northen Italy hospitals: Jason Van Schoor @jasonvanschoor Registrar in Anaesthesia & ICM | NIHR UCL Academic Clinical Fellow From a well respected friend and intensivist/A&E consultant who is currently in northern Italy: 1/ ‘I feel the pressure to give you a quick personal update about what is happening in Italy, and also give some
Today’s stats. First, infections gone mad: Number of days to double improving in north Asia, ugly in developed countries: Italy is now the globla super-spreader. Welcome to the Aussie Grand Prix: Winter still dominant but Summer is takling off and is roughly now the same in number of days to double off a very low
Don’t get me wrong. China is not off the hook for COVID-19. It only started thanks to the contradictions of totalitarian CCP rule. Yet it is impossible to miss the diametric opposite responses of East and West to the pandemic. China shut down completely to choke the virus. It appears to be on the verge
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Brambles CEO Graham Chipchase says the coronavirus outbreak may result in permanent changes to the working environment. He says companies are likely to place more emphasis on having staff work from home, while many businesses are likely to reduce business-related travel and make greater use of teleconferencing. While Chipchase notes that access to high-speed broadband
With Australian new car sales plummeting for 23 consecutive months: Martin Ward, CEO of car dealership AP Eagers, which has a network of 200 dealerships across Australia, claims the Australian automotive sector needs a special stimulus package from the federal government. Ward says measures the sector would like to see the government consider include accelerated
2020 was already shaping as a tough year for Australia’s construction industry. According to the ABS, dwelling approvals collapsed in the 2019 calendar year, down 28% from peak, with commencements following close behind: Now, picture has worsened with Australian Shop & Office Fitting Industry Association CEO, Gerard Ryan, claiming its members are looking at delays
From NAB: Both confidence and conditions declined this month (after a period of stabilisation in conditions), though it appears too early to fully quantify the effect of the coronavirus with around 50% of firms reporting no impact to date. That is surprisingly small but, in our view, will clearly deteriorate going forward. Even so confidence
Via ANZ: Consumer confidence fell 4.2% last week. This was the third consecutive fall, for a cumulative decline of more than 8%, taking the index to a low last seen in May 2014. ‘Current economic conditions’ fell 8%, adding to the massive 16.6% decline in the previous reading. ‘Future economic conditions’ bucked the trend with
History has just run down and crushed ScoMo, at the AFR: “We now have one goal in 2020 – to protect the health, wellbeing and livelihoods of Australians through this global crisis, and to ensure that when the recovery comes, and it will, we are well positioned to bounce back strongly on the other side.”
An important post from Rodney Lay at LiveWire: A near unprecedented crash in equities, oil smashed, 10Y Treasury futures soaring, and also for the first time in over a decade in that market, locked limit up for about an hour prompting a brief trading interruption. And, the entire US Treasury curve – including the 30Y
Last week, the Australian Office of Financial Management (AOFM) issued a $1.2 billion 10-Year Treasury Bond at a yield of only 0.82%: Thus, with Australia’s inflation rate running at 1.8% currently, the federal government effectively borrowed at a negative real interest rate of nearly 1%. Put another way, even if the federal government only returns
The Bank for International Settlements (BIS) has released its global household debt data for the September quarter, which again ranked Australians as the second most indebted in the world. The next table summarises the ratios of household debt to GDP: As you can see, Switzerland (132%) takes the gold medal in the global household debt
Via Bill Evans at Westpac: Westpac has revised its growth forecasts for the Australian economy in 2020 to take into account the expected impact from the Coronavirus. The numbers are based on a “no fiscal stimulus package” basis. The Government is set to announce its policy response later in the week and it will be
Via Martin North: The latest data from our household surveys to the end of February 2020 shows that the impact of Covid-19 are hitting home. The index dropped again, into uncharted territory, to an all time low of 80.2. I even had to change the scale of the chart to accommodate the fall! We ask
Slowly but surely, Melbourne’s extreme population growth, which has seen the city’s population balloon by more than one million people (26%) in a decade, is threatening to overthrow another state government. The Brumby Labor Government was voted-out on the back of public discontent with issues such as planning, public transport, cost of living, housing unaffordability
