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.

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Freelancer CEO Matt Barrie goes nuclear on Australian meltdown

Freelancer CEO Matt Barrie and Craig Tindale have gone nuclear on a coming Australian meltdown today at LinkedIn. The entire article is reproduced below if you have a spare two days. I recently watched the federal treasurer, Scott Morrison, proudly proclaim that Australia was in “surprisingly good shape”. Indeed, Australia has just snatched the world

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NAB business survey loses touch with reality

From the increasingly perverse NAB business survey: Australia’s business sector appears to have enjoyed highly favourable business conditions in October, continuing the long-run of solid outcomes in NAB’s Monthly Business Survey. The Survey showed that business conditions hit a high of +21 index points in October, up +7 points from September and the highest level

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Australia’s increasingly worthless university degrees

By Leith van Onselen The Australian’s Judith Sloan has joined the conga line hitting out at Australia’s demand-driven university system: It’s called degree inflation in the US but we tend to use the term credentialism. It refers to the phenomenon in which jobs once filled by non-graduates increasingly are filled by graduates. In the case of the

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As migrants flood Sydney, city experiences brain drain

By Leith van Onselen The latest population figures for NSW showed that the state received a whopping 93,481 net overseas migrants in the year to March 2017, but lost nearly 14,000 residents interstate: According to analysis by economist Callam Pickering and others, many of the workers leaving Sydney are high skilled, meaning the city is

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Amazon readies to slam Aussie inflation

Via the AFR: Amazon has confirmed the fears of Australian retailers by claiming it is willing to sacrifice short-term returns to ensure long-term success as it prepares to invest $700 million in Australia over the next five years. “Let me tell you we are getting really, really really close,” Mr Braeuniger told about 500 potential

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Another month, another migrant labour scandal

By Leith van Onselen Since the 7-Eleven migrant worker scandal broke in 2015, there has been a regular flow of stories emerging 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

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Older Aussies getting wealthier as the young are left behind

By Leith van Onselen The bubble in Australian (read Sydney and Melbourne) housing values has driven a surge in household wealth as well as inequality, according to a new 50,000 strong survey by Roy Morgan Research (RMR): Australian households’ have increased their net wealth over the last four years from $5.7 trillion to $8.1 trillion,

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Dr Bob Birrell: High immigration eating youth jobs

By Leith van Onselen Dr Bob Birrell from Australian Population Research Institute has argued that foreign students are locking younger Australians out of the jobs market. From the Herald-Sun: TENS of thousands of foreign students are prolonging their stay in Australia by switching visas to become tourists, partners of local residents and even asylum seekers.

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Let Productivity Commission test “blockbuster” TPP 2.0

By Leith van Onselen Here we go again. The AFR has penned another article hailing the “blockbuster” benefits that will flow to Australia from the new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), dubbed by MB as TPP 2.0: TPP 11 as it has become known, presents a blockbuster opportunity for Australian exporters who

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Consultants ride the NSW privatisation gravy train

By Leith van Onselen Independent investigative journalist, Michael West, has penned another illuminating piece on how consultants have made out like bandits from the NSW Government’s massive privatisation agenda: There’s no work like government work… Here are a few of the rippers. The “Disability and Customer Care Services Transfer”, read flogging of the state rights

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Henry Ergas jukes the stats (again) on falling workers’ share

By Leith van Onselen The Australian’s Henry Ergas has penned another article today attempting to debunk ACTU chief, Sally McManus’s, claim that Australian workers are getting less of the economic pie: At the heart of those inventions is the assertion that Australian workers are being brutally crushed. “Labour’s share of ­national income,” she says in

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Sydney’s “jobs boom” is really just an immigration boom

By Leith van Onselen Fairfax’s Matthew Wade has wrongly pinned the blame for Sydney’s housing and infrastructure woes on the city’s “jobs boom”, especially within the inner core: Sydney has added nearly half a million jobs in the past decade but patterns of employment growth are putting the city’s transport system under pressure and helping

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The $8trillion sharing economy is now

Via BofAML: The Sharing Economy: transforming 21st century business The emergence of the Sharing Economy – an umbrella term for a range of activities transacted over online platforms – is transforming 21st century business. Disruptive business models include: on-demand (Uber), rental (Airbnb), gig (TaskRabbit), access (Spotify), collaboration (WeWork), platforms (Amazon), circular (ThredUP) and peer-topeer (Lufax).

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Property investors drive fall in household financial confidence

By Martin North, cross-posted from the Digital Finance Analytics Blog: The latest edition of the Digital Finance Analytics Household Financial Security Confidence Index to end October shows households are feeling less secure about their finances than in September. The overall index fell from 97.5 to 96.9, and remains below the 100 neutral setting. We use

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Capital Economics: housing correction already hitting Australian growth

Via Capital Economics: The stagnation in house prices in Australia in recent months is a big deal as it means housing won’t support the economy by as much as in recent years. The plunge in the number of home sales will continue to restrain spending on items like fridges and furniture. And the weaker price trend will

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East coast land prices crash 30%

Via the AFR: Metropolitan development sites values, which have surged in recent years on a wave of Chinese money, are showing the first signs of correcting after developer Nicholas Smedley secured two sites at discounts of 30 per cent or more after vendors rejected his original off-market offers, thinking they would get more through a

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Hyman Minksy’s ghost haunts the RBA

Via ANZ: The most recent RBA data on private sector credit showed that in the year to September housing credit was up 6.6% year-on-year. The annual growth rate has been steady since May, though it has accelerated marginally since this time last year and is still significantly outpacing income growth. We very much doubt that

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RBA exposes Australia’s Minsky moment

From yesterday’s statement: Growth in housing debt has been outpacing the slow growth in household income for some time. To address the medium-term risks associated with high and rising household indebtedness, APRA has introduced a number of supervisory measures. Credit standards have been tightened in a way that has reduced the risk profile of borrowers.