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.


Tourism and aviation industries demand government support

Business leaders and unions are demanding urgent support for the tourism and aviation sectors after government data revealed the industry lost almost $6 billion in three months during the pandemic. International tourism spending was down almost $4 billion or more than 27% for the March quarter compared with the same time last year. The greatest


Victoria faces $12b economic hit from new lockdown

With Victoria accounting for around one quarter of the nation’s economy and Melbourne making up 20% of the nation’s population, Commonwealth Bank head of Australian economics, Gareth Aird, says the six-week lockdown in Melbourne is likely to reduce Australia’s GDP growth by about 1% in the September quarter. While the economic cost of the lockdown


RBA holds for July

by Chris Becker At its latest meeting the Reserve Bank has held its cash rate at the record 0.25% low. Australian dollar flitted immediately with the 69.50 level but is coming back after tapping out just below the 70 handle earlier today (and in time with my “Aussie could go to 80cents” post!) Reserve Bank


Jacinda Adern opens door to Trans-Tasman travel bubble

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Hospitality industry cries “skills shortage”

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Australia’s services economy dies

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Brace for mass restaurant closures

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Victoria’s ponzi economy collapses

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Terry McCrann: “Abandon the Big Australia population Ponzi”

Over the weekend, Terry McCrann called for the mass immigration ‘Big Australia’ Ponzi scheme to be abolished once and for all: Abandoning the ‘Big Australia’ population Ponzi that has been — chaotically — the foundation of our economic policy framework for the past 20 or so years and which has not only substituted for the


Links 7 July 2020

Global Macro / Markets / Investing: Global tourism stands to lose up to $3.3 trillion from COVID-19 – Reuters Fitch Ratings downgraded a record 33 sovereign ratings – Economo World’s Largest Pension Fund Loses $165 Billion in Worst Quarter – Yahoo Americas: Walmart is transforming 160 store parking lots to drive-in movie theaters this summer.


Half of Virgin’s staff face axe

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AMA: Don’t ease COVID-19 restrictions

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Australian job ads continue to improve

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Australia’s skilled visa system temporarily suspended

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Victoria’s COVID-19 infections turn exponential

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NSW shuts border with Victoria

From The ABC: The Victorian border with New South Wales will be closed from Tuesday night following talks between Premiers Daniel Andrews and Gladys Berejiklian and Prime Minister Scott Morrison, the ABC understands. Mr Andrews is due to hold a press conference at 10:45am. Victoria is now fully isolated from the rest of Australia.


Blame Victorian Government for COVID-19 tsunami

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