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.


Aussie university vice chancellors still grossly overpaid

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ACCI contradicts itself on Aussie labour market

You have got to love the contradictory statements coming from the Australian Chamber of Commerce and Industry (ACCI), which continues to talk with a forked tongue on the labour market. The ACCI recently sent a submission to the Morrison Government’s migration program review whereby it demanded easier access to foreign workers to ameliorate purported crippling


Australia’s fake education ‘exports’ exposed again

MB has comprehensively debunked Australia’s claimed $40 billion of education exports, which are wildly exaggerated. In a nutshell, the majority of education ‘exports’ comes in the form of expenditure on goods and services in Australia, as explicitly acknowledged in a recent Mitchell Institute report: The majority of the $20 billion loss of economic value is


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Morrison Government must incentivise state tax reform

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Australian job postings soften

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Labour shortage drives productivity-lifting automation

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Lockdown plunges Melbourne CBD movements below 20%

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Morrison COVID fail unravels consumers

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COVID achieves what urban planners could not

Policy makers and urban planners have for generations attempted and failed to diversify Australia’s economic activity and settlement away from the cities. These same central planners also regularly touted so-called ’20-minute cities’ where people can live, work and socialise, only for commute times to grow as workers shunted into the CBD on crowded trains and


Morrison’s post-iron ore economic plan comes from Nauru

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Should we fret the household debt?

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Judith Sloan takes axe to edu-migration rent seekers

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Survey: 95% want to work from home

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It’s called a progressive tax system for a reason

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Overheated NAB survey screams steep interest rate hikes

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Canada to open to vaccinated tourists

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Inflation expectations off the lows

Roy Morgan has released its inflation expectations survey for May, with Australians expecting inflation of only 3.7% over the next two years – well below the RBA’s inflation target of 2% to 3% inflation annually: However, Inflation Expectations are now tracking well above where they were a year ago (3.3%). Inflation Expectations are now 1%


Australia’s low wage growth is by design

Over the weekend, ABC business reporter, Gareth Hutchens, published an article suggesting that “stagnant wages” and “labour market ‘slack’” are part of the “federal government’s plan”. Hutchens sites the collapse in wage growth over the past decade or so: He then notes that the mass immigration policy pursued by the federal government meant that despite


Aussie company profits rocket 11% during pandemic

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Morrison quarantine stupidity is the only virus threat

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