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.
Recessionberg is looking for tax cuts. Via Domain: The Morrison government is looking at ways to deliver tax relief to middle income earners as a much-needed boost to the economy after the nation suffered its biggest one-month fall in jobs in more than three years. Treasurer Josh Frydenberg said the government was “always looking” at
Yesterday’s ABS labour force release for October revealed a sharp deterioration in Australia’s youth labour market – i.e. those aged 15 to 24 years old – with falling jobs growth and rising unemployment and underemployment. The trend headline unemployment rate rose to 12.05% in October: Total employment growth for those aged 15-24 years fell to
The Morrison Government’s regional visa incentives, which provides five extra points towards permanent residency and allows international students to stay for up to seven years, has driven a surge in enrolments into Tasmania and South Australia: Data from the International Education Association of Australia shows that student commencements in Tasmania were up by 35 per
As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for October, which registered a 19,000 decrease in total employment and an increase in the headline unemployment rate (from 5.2% to 5.3%). In trend terms, the unemployment rate was steady at 5.3%: Again, total employment fell by a seasonally adjusted
New data released from the federal government shows that graduate employment outcomes have dipped from last year: In 2019, 72.2 per cent of undergraduates were in full-time employment four months after completing their degree, down by 0.7 percentage points from 72.9 per cent in the previous year. The overall employment rate for undergraduates was 86.8
Via Damien Boey at Credit Suisse: The Westpac consumer confidence report for November registered more improvement. After 3 rate cuts, tax cuts, the announcement of first home-buying incentives, and credit easing, consumer confidence was looking particularly dire by October, falling well below neutral levels. It looked very much like consumers were responding to the bad
Via the ABS: OCTOBER KEY FIGURES Sep 19 Oct 19 Sep 19 to Oct 19 Oct 18 to Oct 19 Trend Employed people (‘000) 12,923.4 12,935.7 12.3 2.1% Unemployed people (‘000) 720.6 722.4 1.8 6.4% Unemployment rate (%) 5.3 5.3 0.0 pts 0.2 pts Underemployment rate (%) 8.5 8.5 0.0 pts 0.2 pts Participation rate
Sydney’s water storages are plumetting at a faster rate than was experienced during the 2000s Millennial Drought, which was said to be the worst drought in Australia’s recorded history: This has authorities concerned that Sydney could soon face “day zero” – a time when the city runs out of drinking water: Sydney’s water storage levels
Check out the below chart from yesterday’s June quarter wage data from the ABS: As you can see, Victoria is way out in front on wage growth, recording wage rises of 2.8% over the year to September. Now check out the next chart showing wage growth across Australia’s various public sectors: As you can see,
If the definition of insanity is doing the same thing over and again and expecting a different result, then Aussie economists are bonkers, at Domain: BIS Oxford chief economist Sarah Hunter said the wage figures were dismal, adding they meant the RBA would have to take official interest rates down to 0.5 per cent next
The latest Roy Morgan Research (RMR) unemployment estimate for October showed strong improvement, falling by 0.9% over the month to 7.8%: Over the year, unemployment fell by 1.6%. Underemployment has also fallen by 0.3% over the past year to 8.9%, with labour underutilisation tracking at 16.7% (down from 1.9% from a year ago): Below are
SEEK jobs ads still falling: Bed pans forever!
Yesterday’s labour price index for the September quarter, released by the ABS, confirmed that the public sector is driving wage growth across the Australian economy: As shown above, public sector wages grew by 2.5% in the year to September, versus a 2.2% increase across the private sector. This continues a long-running trend, with real public
A superficial glance at Australia’s international student numbers reveals an industry in rude health. The number of international student visa applications granted – a leading indicator for new enrolments – hit an all-time high 406,000 in the year to June 2019: The number of new international student enrolments at Australia’s education institutions also hit a
With Murdoch University under siege over its poor handling of international student enrolments and its lawsuit against whistle-blower Dr Gerd Schroeder-Turk, an enterprising individual going by the avatar of Murdoch Maven has published the above hilarious parody: “Murdoch Downfall”. Warning: the subtitles contain very explicit language. Enjoy!
Australia is littered with examples of so-called ‘skilled’ migrants gaining visas only to then work in unskilled areas for low pay (e.g. here, here and here). Now, a sinister plan is being hatched to flood Australia with Indian workers to fill imaginary skills shortages: An Indian strategy to boost economic ties with Australia will recommend
The Australian Bureau of Statistics (ABS) has just released its Labor Price Index for the September quarter of 2019, which revealed falling wage growth: According to the ABS, wages grew by just 0.53% (both s.a. and trend) in the September quarter. Private sector wages grew by 0.53% (both s.a. and trend) over the quarter, whereas
It’s so very rare these days to see an Aussie with balls but Drew Pavlou has ’em. He’s now taken his fight against the CCP takeover of the Univerity of Queensland to the front page of the Financial Times: Drew Pavlou is an unlikely threat to the Chinese Communist party. The 20-year-old arts student at
It looked a bit overdone last month, via Westpac: The Westpac-Melbourne Institute Index of Consumer Sentiment rose 4.5% to 97.0 in November from 92.8 in October. This rise in the Index follows a sharp 5.5% fall in October. The pattern of confidence falling in response to a rate cut and recovering when the RBA remains
Via the always bullish Deloitte: According to Deloitte’s Retailers’ Christmas Survey 2019, positive sentiment is down, in strong contrast to 2018, when retailers were approaching the season with a strong sense of optimism. Now in its eighth year, key survey findings include: Only 62% of retailers expect to see higher sales this Christmas compared to last year, down
Statistics New Zealand has released tourism data showing that more than 1.5 million Australians travelled to New Zealand in year to September 2019 – a record high: Visitor arrivals from Australia exceeded 1.5 million for the year ended September 2019, Stats NZ said today… The lift in visitor arrivals from Australia for the year ended
Yeh. The elite will tell you that you’re a whinger or a racist. To suck it up and move on. But you aren’t. What has happened to Australian income is not only abnormal. It is historic. Worse, it is only half over. The OECD describes real net income per capita (RNNPC) in the following way:
Evidence of Australia’s stuttering economy continues to mount, with the number of Australians turning to payday loans booming: Payday loans targeting the financially vulnerable are being taken out at the rate of more than 30,000 a week, with the amount borrowed in Australia on track to be worth $1.7bn by year’s end. New data on
May’s Four Corners “cash cows” report on Australia’s international student industry showed that universities have eroded both entry and teaching standards to entice huge volumes of lower-quality, full fee-paying international students: “In terms of attracting international students, universities will do whatever they need to do…they are the cash cows. There is no doubt about it.”
Via Peter Hartcher today: Yet Australia itself, where sane and centrist politics has largely prevailed, isn’t immune to the danger of a xenophobic populism in future. The Lowy Institute’s Sam Roggeveen has written an essay with the disturbing title Our Very Own Brexit. “The tacit agreement between among our political class to support high immigration
Via NAB: Key messages from the Survey: This month’s survey results continue to point to only modest outcomes in the business sector, though forward-looking indicators have improved slightly and may be pointing to a stabilisation in conditions. Conditions and confidence each saw a small improvement in the month with conditions edging up 1pt and confidence
Via Nine today: Great to see them suffering. Ad budgets are always the easiest cuts to make in downturn. If weakness persists then headcount will be next.
The post-election bounce is well and truly over, with Roy Morgan reporting that business confidence has crashed, with forward indicators driving the decline: Roy Morgan Business Confidence dropped 4.6pts (-4.2%) to 106.0 in October, putting it at its lowest level since the Federal Election in mid-May. The fall was heaviest in forward-looking indicators, with the
Ever since the Howard Government opened the immigration flood gates in the early-2000s: Australia’s economy, as measured in per capita terms, has been on a downward trajectory: As shown above, real GDP per capita growth has been falling for around 15 years, with the Australian economy experiencing its first annual fall in per capita GDP
The “paradox of thrift” was a theory made famous by renowned economist John Maynard Keynes. The theory posits that individuals will try to save more during an economic recession, which then leads to falling aggregate demand. Such “thrift” is harmful for everybody as the overall economy slows. It appears that the “paradox of thrift” is
