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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Aussie consumer confidence rebounds

ANZ-Roy Morgan Aus Consumer Confidence: Jumps more than 4% for the strongest gain in some time. Current economic conditions up 25% in the past two weeks, but still a way below neutral. Confidence is now above neutral in Perth & Adelaide. #ausretail @DavidPlank12 @roymorganonline pic.twitter.com/fW0tZFMb2g — ANZ_Research (@ANZ_Research) August 24, 2020  

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Carmageddon beckons unless work from home continues

With social distancing likely to be the norm over the next several years, the notion of sardine-packing residents into trains, buses and trams is obviously no longer viable if Australia is to contain outbreaks of COVID-19. This has raised concerns that capital city traffic congestion could worsen after restrictions ease, with commuters tipped to shun

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ABS: Half of stimulus payments used for essentials

The ABS today released its Household Impacts of COVID-19 Survey for June, which gave insight into how Australians have spent their COVID-19 stimulus payments: Key findings By June, 35% of Australians had received a personal stimulus payment from the Government in response to COVID-19. One third (32%) of people reported that the main use of

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Use COVID-19 to clear infrastructure backlog

A new strategy to boost economic activity in Melbourne will be submitted for approval under the federal government’s ‘City Deal’ program. The blueprint outlines plans for 66 major projects in Melbourne’s north and west, which are forecast to record a surge in population growth over the next two decades. The projects, which include a second

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Innes Willox declares war on Aussie workers

For years Chief Executive of the Australian Industry Group (AIG) and Migration Council of Australia Chair, Innes Willox, has lobbied against laws to prevent wage theft, lobbied against stricter labour hire rules, has spread copious propaganda about skills shortages, and has lobbied for mass immigration. Today, Willox has demanded that Australia lift its permanent migration

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Victoria’s COVID-19 infections plummet

Victoria’s recorded 116 new COVID-19 infections overnight and 15 deaths: It was the lowest daily increase in infections since 6 July: And the infection growth rate has plummeted to 0.65: NSW recorded only 3 new COVID-19 infections and has the situation well under control:   With the growth rate well below one: And NSW continues

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Australia must prepare for the collapse of China trade

A nice piece from Paul Kelly on the weekend: China’s targeting of Australia’s highly successful $1.1bn wine export market, the latest threat in its campaign of trade retaliation, is a small cog in the larger global revolution where the US and China are decoupling in trade and technology — the lurch into a potentially demoralising

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NT Government puts international students first, Aussies last

Last week, the Northern Territory (NT) confirmed that it would keep hard border controls in place for at least another 18 months, with the closure remaining indefinite for Victoria: Mr Gunner told ABC 24 the list of banned states and territories was more likely to increase than decrease, and 18 months was a “conservative” estimate

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Turns out we weren’t breaking COVID-19 self-isolation rules

It’s becoming hard to believe anything that comes out of Victorian Premier Daniel Andrews’ mouth when it comes to COVID-19. On 4 August, Daniel Andrews scolded Victorians for failing to self-isolate, claiming that recent door knocks conducted on 3,000 properties found 800 people were not at home. Andrews then used this “unacceptable” 27% non-compliance rate

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Retail sales beat in July

Via the ABS: Preliminary July key figures July 2020 June 2020 to July 2020 $m % change Turnover at current prices Seasonally Adjusted 30 753.2 3.3 Retail turnover, current prices, seasonally adjusted, percentage change Preliminary July key points Current prices The seasonally adjusted estimate rose 3.3% ($993.7m) from June 2020 to July 2020. Turnover rose

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CBA flash PMI sinks back into recession

Via CBA: The CBA Flash Composite PMI indicates a contraction in business activity over August.  This is hardly surprising given the lockdown measures in Victoria (~24% of the national economy).  The Composite PMI sits only modestly in contractionary territory (48.8) so it is highly likely that outside of Victoria private output continued to expand over

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Morrison butchers critical vaccine rollout inside 24 hours

It may have shaped as the most important policy implementation in a century. Now it is butchered inside 24 hours of launch. It was always far too much, too fast. First, PM Morrison declared we’d all be force-jabbed with a non-existent and untested vaccine: Talking up hopes of a successful vaccine on Wednesday morning, Mr

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Car dealerships face grim future

It is fair to say that Australia’s car dealerships are facing a grim future, caught between plunging sales and changing technologies. New car sales were already collapsing before the COVID-19 pandemic hit, with annual sales slumping to December 2009 levels after 28 consecutive months of decline: However, the pandemic has made a bad situation worse,

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Garnaut’s new green deal offers hope

Ross Garnaut yesterday at the AFR: It is impossible to snap back to what we had last year. Nor should we want to snap back. Australia’s economy performed badly for most of its citizens in the seven years between the China resources boom and the pandemic – the dog days. Unemployment and underemployment in the

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Lunatic RBA alumnus offers happy clappy drivel

John Edwards at The Lowy Institute: EXECUTIVE SUMMARY Australia is emerging from the pandemic sooner and at less economic cost than widely expected, but with higher unemployment and elevated debt. As the pandemic recedes, it is evident that global output and demand will recover slowly and unevenly. Major advanced economies have sharply increased government debt

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Welcome to the K-shaped recovery

Via WaPo: Economists cite stocks soaring above widespread pain in the real economy as a vivid example of the best-of-times, worst-of-times dynamic emerging from the coronavirus pandemic. It is evidence, they say, that a stuttering recovery isn’t shaped like a U, a V, or even an L, as much as a K, whereby those at the top of

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How Indian slaves corrupted New Zealand’s labour market

Via Stuff comes a great expose of how Indian slavery arrived in New Zealand. Over two years, a growing number of young Indian men have come forward alleging exploitation by their employer. Why does this keep happening? National Correspondent Steve Kilgallon reports. In 2016, at the height of an export education boom, 11,024 Indians came

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Depressionberg blocks China milk bid

Via the AFR: Treasurer Josh Frydenberg secretly shunned the Foreign Investment Review Board and Treasury which advised him to approve China Mengniu Dairy Co’s proposed $600 million acquisition of Lion Dairy & Drinks, but he hasn’t publicly announced the rebuff. As tensions flare over China’s threat to impose trade penalties on allegedly “dumped” Australian wine, The Australian Financial

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The decline and fall of “Australia” has begun

It’s not lockdowns. It’s not specific state governments or federal. It’s no one individual or institution. It’s a collapse of accountability across the political spectrum and it is accelerating. Examples are everywhere: The PM declares he will make an untested vaccine mandatory at risk to life and limb of every Australian. Premiers stuff up quarantines

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Why NSW’s COVID-19 performance puts Victoria to shame

One of the most stunning revelations to come out of the COVID-19 ‘second wave’ is the effectiveness by which New South Wales has controlled outbreaks versus Victoria, as illustrated in the below chart: So, while Victoria’s cases went exponential, New South Wales’ remained steady: Several investigations have suggested that the differing outcomes are due to