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.


Visa scammers target Tasmania for permament residency

The Morrison Government is hailing the success of its regional visa scheme after new figures reveal that the number of ‘skilled’ migrants landing in Tasmania has more than doubled: Figures to be released today by Immigration Minister David Coleman show 609 people came to Tasmania between July and September under the regional sponsored migration and


Minack special report: Blah or bust for Australia?

Exclusively from Gerard Minack: House prices bounce but Australia remains stagnant Australia’s housing correction is, for now, over.  A lift in prices points to rising housing turnover, which will help some retailers.  But none of this changes the stagnation in incomes and the sub-par growth outlook.  And none of this reduces the risk of a


International student critics crucified by greedy university overlords

Earlier this year, ABC’s Four Corners aired a damning report entitled “cash cows”, which heavily criticised Murdoch University for achieving a 92% surge in international students enrolments between 2017 and 2018 by dropping English language standards and “dumbing down” courses for profit, thereby driving increased incidences of plagiarism, academic misconduct, and rising failure rates. The


Backlash swells over Morrison Government’s visa privatisation

Labor has stepped up its attack against the Morrison Government’s plan to privatise Australia’s visa system, with Labor senator Helen Polley claiming it would raise costs, make border enforcement more difficult, and lead to greater exploitation: “Privatising our visa system will lead to increased costs of visas, greater risks of worker exploitation, data security breaches


Recessionberg demands states slow growth

Oh yes, via the AFR: Treasurer Josh Frydenberg has rejected a renewed push by NSW to bring back federal incentives for state asset recycling, a privatisation scheme designed to help fund large infrastructure projects, saying the state’s budget is in better shape than the Commonwealth’s and needs no more handouts. Speaking ahead of today’s meeting


VIC Government feeds homeless to the wolves

With Victoria’s population growing out of control on the back of turbo-charged immigration: And Melbourne’s population projected to more than double over the next half century: You would think that the Victorian State Government would be seeking to boost the stock of social housing in order to prevent vulnerable residents from becoming homeless. Not so,


Fortescue demands Australia kow tow to China

Via The Australian comes the oligarchs: Fortescue Metals Group boss Elizabeth Gaines has warned that China will look to develop alternative iron ore supplies outside the Pilbara if Australia neglects its relationship with its biggest trading partner…Ms Gaines said the Australian business community needed to maintain its influence in public debate on political policies. “The


What would a US/China Plaza Accord do to the Australian dollar?

More trade scuttlebutt this afternoon, via Bloomie: The White House is looking at rolling out a previously agreed currency pact with China as part of an early harvest deal that could also see a tariff increase next week suspended, according to people familiar with the discussions. The currency accord — which the U.S. said had


Household confidence crash continues

Recessionberg! Via Martin North: In our latest release to September 2019, the DFA Household Financial Confidence Index fell again, having move sideways more recently. In essence households are simply reflecting that rate cuts, a lower dollar and the international bad news from Trump’s Trade Wars, Brexit and Hong Kong are all making them more concerned,


Fake Labor Party waves through wage-crushing Indonesian FTA

The Joint Standing Committee on Trade (JSCOT) has released its report rubber stamping the Hong Kong and Indonesia Free Trade Agreements (FTAs). The Indonesian FTA, in particular, will permit several thousand more Indonesians working rights, thus leading to more temporary migrant rorting, more low cost labour for business, and further undermining Australian wages and working


Australia facing climate change “mass migrant invasion”

As we already know, Australia massively increased its migrant intake in the early-2000s, and this has driven a three-fold increase in Australia’s net overseas migration (NOM) compared to the historical average: Accordingly, the Australian population has ballooned by around 6.4 million people (34%) so far this century. The Australian Bureau of Statistics’ (ABS) median projections


How to crash your energy bill 80%

Cross-posted from One Step off the Grid: The calendar says winter is over. Warmer days lie ahead. But this past winter was one when Australians in all-electric homes could be comfortable and count the dollars saved while burning no fossil gas. Home-economic studies show Australians can save money with all-electric homes by tapping in to renewable


International students set to fall as entry standards forced up

Have we finally started to make a difference? Earlier this week we learned that several Australian universities have blocked access to Indian international students from Haryana, Uttar Pradesh and Punjab. These changes to university admissions follows the Department of Home Affairs’ reclassification of student visa applications from India, Nepal and Pakistan as “high-risk”. This means


Credit Suisse growth tracker crashes into deep recession

Oh yes, via Damien Boey at Credit Suisse: Over the past few days, we have witnessed some rather sharp deterioration in the leading indicators of Australian growth: Westpac consumer confidence fell sharply in early October to 92.8 from 98.2. For reference, readings below 100 have historically been associated with contraction. Westpac home-buying sentiment fell in


ABC: Melbourne’s outer migrant suburbs a “modern slum nightmare”

The ABC has published an interesting profile on the outer-Western Melbourne suburb of Tarneit, which is fast morphing into a modern migrant slum nightmare: When the Bahadur family moved into their new home in Melbourne’s booming outer west four months ago, they dreamed of suburban bliss. But it turned out to be a nightmare. “We


Power grid descends into chaos as gas cartel laughs

Via the AFR today: The chair of the Energy Security Board Dr Kerry Schott says the rapid take-up of household rooftop solar panels in Australian cities is causing energy security problems for energy distribution companies. …”The so-called duck curve is really causing security issues for the distribution networks,” she said.Dr Schott said Australia’s power grid


Australia’s economy is bred for stupidity

Yesterday we reported how the Harvard Kennedy School’s Center for International Development has ranked the Australian economy amongst the least sophisticated, with Harvard labelling Australia “rich, dumb and getting dumber”. Today, a variety of mainstream Australian economists have addressed Harvard’s rankings, with some dismissing the findings and others showing concern. From The AFR: “Complexity of


Trashed visa system fuels human trafficking, exploitation and slavery

Department of Home Affairs officials have confirmed that around 95,000 asylum seekers have arrived in Australia by plane over the past five years, which Labor claims is fuelling “exploitation and slavery”: The figures were disclosed in answers to Questions on Notice from Labor’s spokesperson for Home Affairs and Immigration Kristina Keneally. “There’s nothing wrong with


International students conned by deceitful migration agents

Last week, a group of academics released a report, entitled Temporary Graduatification, which sounded the alarm over the exposure of international student graduates to unscrupulous migration agents: … many international students who want to stay on and apply for the 485 [Graduate] visa are vulnerable to being exploited by a growing number of ‘dodgy’ agents


NAB business survey remains weak

Via NAB: Business conditions recorded a sixth consecutive below-average month, pointing to ongoing weakness in the business sector. In the month, conditions edged up 1pt and confidence edged lower. While both conditions and confidence remain below average levels +6 index points – the broadbased trend decline since mid-2018 appears to have slowed. In the month,


ANZ job ads get worse more slowly

Something of a slowing in the ANZ job ads negative trend: After falling 2.6% m/m in August, ANZ Job Ads recorded a small gain of 0.3% in September. This saw the annual decline fall to -10.4%. In trend terms, job ads fell -0.2% m/m and -10.9% y/y. ANZ Senior Economist, Catherine Birch, commented: Job ads


Melbourne’s dystopian migrant-stuffed future revealed

The latest medium population projections from the ABS has Melbourne’s population more than doubling to 10.2 million by 2066, with the city’s population projected to increase by 109,000 people annually: As you can see above, 89% of Melbourne’s population increase is projected to come from net overseas migration (NOM), meaning that without positive migration, Melbourne’s


The dumbening of Australia

The Harvard Kennedy School’s Center for International Development has developed an Atlas of Economic Complexity, with Australia being ranked as having one of the least complex economies. The Atlas measures the diversity and sophistication of national exports, with almost all of Australia’s exports not requiring a degree to make. The Center for International Development contends


Australian Treasury: compulsory superannuation increase will lower wage growth

Treasury analysis, obtained under Freedom of Information, claims that raising Australia’s superannuation guarantee (‘compulsory superannuation) to 12% would lower wage growth and would make the gender retirement savings imbalance even worse: Though compulsory SG contributions are paid for by employers, wage settings generally takes into account all labour costs. As such, it is widely accepted