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.


Trade deficit blowout

The November trade figures are out and its an absolute stinker with a big blowout, wiping out the plus half billion surplus expected by market economists with big revisions to the October print.   BALANCE ON GOODS AND SERVICES In trend terms, the balance on goods and services was a deficit of $194m in November 2017, a


Services sector stronger on Santa rally

Well it seems we all had a good Christmas as the AIG released its latest PSI indicating that in December, the services sector grew once again making good on its gains in 2017. Here are the details: The Australian Industry Group Australian Performance of Services Index (Australian PSI® ) lifted by 0.3 points to 52.0


Policy failure as electricity sector in crisis

Cross posted from The Conversation by David Blowers Energy Fellow, Grattan Institute Politicians are told never to waste a good crisis. Australia’s electricity sector is in crisis, or something close to it. The nation’s first-ever statewide blackout, in South Australia in September 2016, was followed by electricity shortages in several states last summer. More shortages are anticipated over coming summers.


Carrington Clarke: mass immigration policy undercutting wages

By Leith van Onselen After his superb recent demolition of treasurer Scott Morrison over Australia’s mass immigration ‘Big Australia’ policy (video above), the ABC’s Carrington Clarke has followed-up today with a superb article explaining how flooding the labour market through mass immigration is eroding workers’ wages: The Treasurer has a new favourite mantra — “1,000


Australia’s wealth inequality data is badly lacking

Cross-posted from The Conversation: Australia is falling behind other nations and international bodies in measuring inequality, particularly the concentration of wealth. This also means we are in the dark about the trends affecting Australia’s middle class. The main source of local data is the Australian Bureau of Statistics (ABS), which publishes a Survey of Income


RBA debunks ageing population alarmism

By Leith van Onselen For more than a decade, the Productivity Commission (PC) has debunked the common myth that immigration can overcome population ageing. For example: PC (2005): “Despite popular thinking to the contrary, immigration policy is also not a feasible countermeasure [to an ageing population]. It affects population numbers more than the age structure”.


Melbourne confronts sardine-packed future from ‘Big Australia’ policy

By Leith van Onselen After Melbourne’s population surged by an insane 556,000 in the five years to 2016, and by 1.1 million people over the past 12 years: We learnt in October that the Victorian Government has been forced to remove seating from trains to accommodate surging passenger growth. Now, a Monash University study has


The rise and rise of Australia’s bedpan economy

By Leith van Onselen The Australian Bureau of Statistics (ABS) yesterday released its quarterly labour force report, which breaks-down employment at the industry level to November 2017. Below are some key charts, which present the changes in employment aggregates on a trend basis. First, the quarterly change in employment by industry: As you can see,


Experts slam Australia’s mass immigration ‘Big Australia’ policy

By Leith van Onselen In the wake of last week’s population data from the ABS, which showed immigration into NSW and VIC hitting an all-time high 185,500 (combined) in the year to June: And confirmed that Australia’s population is growing faster than almost every other developed nation: Several experts (including yours truly) have lambasted Australia’s


TPP 2.0 to further open immigration floodgates

By Leith van Onselen The Australian Council of Trade Unions (ACTU) has unleashed on the revised Trans-Pacific Partnership (TPP) trade agreement (dubbed “TPP11”), which will reportedly allow employers unfettered access to ‘skilled’ migrant workers from member nations. From The Guardian: The revived Trans-Pacific Partnership trade deal will allow at least six countries to access temporary


MLC survey shows a nervous consumer

By Leith van Onselen MLC has released its latest Wealth Sentiment Survey, which paints a picture of a very cautious (nervous) consumer. First, many Australians are struggling to save any of their income: Being able to save has been a challenge for a number of Australians – almost 1 in 5 of us have been


RBA Minutes remain dovish

The latest RBA Minutes have been released: International Economic Conditions Members commenced their discussion of the global economy by noting that growth in global industrial production was likely to have increased further in October. The pick-up had been broadly based geographically. Survey measures suggested that conditions in the manufacturing sectors of Australia’s largest trading partners


The 7-Eleven slave economy rolls on

By Leith van Onselen Ever since the 7-Eleven migrant worker scandal broke in 2015, there has been a conga-line of stories about the systemic abuse of Australia’s various migrant worker programs and visa system. The issue culminated last year when the Senate Education and Employment References Committee released a scathing report entitled A National Disgrace: The


Domainfax goes all in for population ponzi

By Leith van Onselen After open borders extremist, Peter Martin, penned an article earlier this month hailing the “powerhouse” Sydney and Melbourne economies, his Domainfax colleague, Matt Wade, has repeated the dose hailing the “creative class” descending on Sydney and Melbourne: Big cities across the globe are thriving and Australia’s twin urban giants – Sydney


Aussies plan to work longer than ever before

By Leith van Onselen In early 2003, I joined the Australian Treasury where I was immediately introduced to the Department’s “Three P’s” framework, which effectively argued that Australia needed to: 1) boost productivity; 2) raise workforce participation; and 3) increase the population via skilled migration, if the nation was to continue to enjoy rising living


New car sales continue to trend lower

By Leith van Onselen The Australian Bureau of Statistics (ABS) today released new motor vehicle sales for the month of November, which registered a 0.1% seasonally adjusted increase in the number of sales over the month and a 2.1% increase over the year: Four jurisdictions reported seasonally adjusted increases in new car sales in November


Bill Evans: Soggy economic outlook means rates on hold. China key risk

Here’s an excellent dissection of the Australian economy by Westpac chief economist, Bill Evans: As we contemplate 2018 and 2019 there are a number of key themes that we believe will dominate economic and market developments. Our advice to customers throughout 2017 has been to expect Australia’s growth rate to be anchored below trend in


Former Productivity Commissioner: mass immigration squeezing life from cities

By Leith van Onselen After last month destroying the flimsy arguments for mass immigration perpetuated by the boosters at the RBA and the Australian Treasury, The Australian’s Judith Sloan has penned another article arguing that Australia’s record migrant intake is squeezing the life from Australia’s two major cities: The permanent migrant numbers are set at


What kind of economic damage will the Dastayari Affair do?

Black Hole Malcolm continues the Bennelong assault, via the AFR: Malcolm Turnbull has tried to blame Labor for an anti-Liberal backlash brewing among Bennelong’s Chinese-Australian community by claiming it was the Opposition which stirred the trouble. With the byelection on Saturday and polls showing Liberal candidate John Alexander a nose ahead of Labor’s Kristina Keneally,


Short-term Chinese arrivals hit new record high

By Leith van Onselen The Australian Bureau of Statistics yesterday released its overseas short-term arrivals and departures figures for October, which continued to show a trend rise in the number of inbound visitors, with Chinese arrivals continuing to boom. The number of short-term visitor arrivals jumped 11.8% in October in original terms, whereas short-term resident


Jobs takes: Curb your enthusiam

At one end is Westpac: November’s headline employment gain exceeded expectations by a significant margin but we would caution before interpret this as suggesting an acceleration in labour demand. As we highlighted in our preview, the weaker than expected October print associated with a falling participation suggested that sample volatility may have been behind the


Insanity as immigration into Sydney and Melbourne hits record high

By Leith van Onselen The ABS has released its Australian Demographic Statistics for the June quarter of 2017, which revealed that Australia’s population continues to grow strongly led by a surge in net overseas migration (NOM), mostly into Sydney and Melbourne, which have both seen record immigration flows. According to the ABS, Australia’s population rose