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.


2019: A year of fake growth

By Kelvin Thomson, National Media Spokesperson, Sustainable Australia Party We’ve just had another bout of breathless reporting from journalists, economists and commentators about our economic growth, accompanying the release of the Mid Year Economic and Fiscal Outlook. Remarkably, people who ought to know better continue to talk about GDP, but make no mention of GDP


Australian Government forecasts wages wipeout for 2020/21

As I analysed the recent MYEFO projections, one thing stood out: Here’s the economic outlook: GDP for this year might be OK but it’s odds-on too bullish. But 2020/21 is deluded and so are the outer years. It is tradition to forecast Futureboom! to bailout today’s stupidity. But it doesn’t ususally accompany a forecast commodities bust which


Aussie jobs surge anew!

The ABS is out with November Labour Force and the news is all good: NOVEMBER KEY POINTS TREND ESTIMATES Employment increased by 17,400 to 12,962,000 people. Full-time employment increased by 8,300 to 8,843,600 people and part-time employment increased by 9,000 to 4,118,400 people. Unemployment decreased by 1,200 to 716,300 people. Unemployment rate decreased by less


More wage thieves confess

Even the super funds are at it, via Banking Day: In an embarrassing admission, ME Bank yesterday confirmed that it underpaid staff A$1.5 million in superannuation entitlements for more than a decade. The bank, which is owned by industry super funds, last week notified 2144 current and former employees about the underpayments that were caused


Australian trade the major casualty of US/China trade deal

The scale of China’s trade pledge task is daunting: Clyde Russell has some musings on what it will mean Downunder: Beijing has agreed to increase purchases from the United States by $200 billion over the next two years over and above the level of imports in 2017, according to U.S. Trade Representative Robert Lighthizer. …While


Australian leading index falls some more

Vai Westpac: The six month annualised growth rate in the Westpac– Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, fell from –0.78% in October to –0.81% in November. The Leading Index growth rate has now been below trend for the last


Jobs go as construction bust builds

Via the ABC: Four hundred people have lost their jobs a week out from Christmas after a group of building supply businesses in Melbourne’s west went bust. The SWC Management group, which operates out of a massive newly redeveloped warehouse in Melbourne’s western suburbs, announced it was going into voluntary administration on Tuesday, with advisory


UK FTA to prise open Australia’s borders

Australia and the UK are tipped to start formal discussions on a free trade agreement (FTA) once the UK leaves the European Union. It is rumoured that a trade deal could include visa-free travel between the two countries: Australian workers could enjoy visa-free travel to the UK under a post-Brexit free trade agreement, with both


Business lobbies demand surpulus

There’s no stopping a business lobby moron: Australian Industry Group chief executive Innes Willox said the budget could afford fiscal stimulus “should the economy fail to pick up steam in the next few months”. “If there is further slowing of domestic activity, measures to stimulate business investment, address the difficulties small businesses are having accessing


Frydenberg spins GDP fairy tales

Treasurer Josh Frydenberg did his best to spin yesterday’s Mid-Year Economic and Fiscal Outlook (MYEFO), claiming Australia’s GDP growth is still among the strongest in the developed world. Here’s Frydenberg on Channel 9: Well there’s always work that we continue to do to strengthen the Australian economy, but if you look at these numbers, it


S&P cheers on Recessionberg

In a magnificent outpouring of guff today at the AFR, L-plate Tresurer Josh Frydenberg puts all stimulus hopes to bed: As we go forward, we will continue to maintain a disciplined and responsible approach to managing the nation’s finances. We will not be panicked into reckless spending. With the budget back under control, our fiscal


High-rise Harry orders Sydney’s wealthy east to absorb migrants

‘Highrise’ Harry Triguboff has told Sydney’s wealthy eastern suburbs that it must accommodate more migrants and accept greater densities: Leading property developer Harry Triguboff says Sydney’s eastern suburbs need to absorb more people to take the pressure off the city’s west. The billionaire Meriton founder has also challenged the state’s politicians to build more homes


Mathias Cormann dances on household’s income grave

Finance Minister, Mathias Cormann, went to extraordinary lengths yesterday to spin the Mid-Year Economic and Fiscal Outlook (MYEFO), claiming repeatedly that household disposable incomes were rising at their fastest pace in a decade: Household disposable income has risen at its fastest rate in more than a decade and Australia has maintained its AAA credit rating…


Sydney’s water crisis deepens

Sydney’s water storages continue to plunge at a rate that makes the Millennial Drought look like child’s play: There’s no end in sight either, according to the Bureau of Meteorology, with no significant rainfall predicted until April. And when rain does finally arrive, the lake which supplies 80% of Sydney’s water is facing possible contamination


Red Book flashes nuclear Aussie consumer warning

Via Westpac’s always superb Red Book. The consumer is dead: Whodunnit? RBA and Treasury: After the tax cuts comes…trouble: More Bad Santa: Major items meh: Let them eat house prices: Any windfall stuffed under matress: Deleveraging rife: Worse unemployment and spending ahead: All states, blokes shocker: Households hate ZIRP: Bloody depressed on global scale: The


CBA consumer intentions remain shot to bits

Ain’t getting better, via CBA: Home Buying Spending Intentions There was a pause in the sharp uptrend in home buying intentions in November Nevertheless, the home buying HSI remains close to the record highs seen in H1 2017 And HSI readings point to an ongoing pick up in dwelling prices Retail Spending Intentions Retail spending intentions are


LVO demolishes Melbourne’s rat wheel economy on ABC Radio

Yesterday evening I was interviewed on ABC’s Drive Program (above) debunking SGS Economics and Planning’s new report claiming that Melbourne is Australia’s “economic powerhouse”. My arguments were based on yesterday’s article entitled “Melbourne ‘economic powerhouse’ delivers falling living standards”, which contains evidence supporting my claims. I did make one minor error in the interview, however,


Sydney’s $2.9 billion light rail to nowhere

Sydney’s farcical $2.9 billion Eastern Suburbs Light Rail Project has had a rough opening with passengers labelling it “too damn slow”: With a 50-minute journey between Randwick and Circular Quay, many passengers noted it would be quicker to drive or get the train. According to Google Maps, the 7.3km trip takes only 15 minutes by


Superannuation rentiers to dominate Aussie economy

Rice Warner forecasts that Australia’s superannuation industry will have $7 trillion worth of assets under management by 2034, compared with $2.7 trillion at present. The firm also expects the sector to eventually be dominated by a handful of ‘megafunds’ that will dominate the Australian economy: The report predicts that the superannuation industry will dominate the


Visa farce mushrooms with nurses added to shortage list

For more than five years, MB has regularly ridiculed Australia’s ‘skilled’ visa system, which we have proven is poorly targeted, ineffective, and is failing in its stated purpose of alleviating chronic ‘skills shortages’ across the economy (see here). On Friday, the Department of Employment, Skills, Small and Family Business published a Traffic Light Bulletin outlining


Melbourne “economic powerhouse” delivers falling living standards

According to SGS Economics and Planning, Melbourne is fast closing in on Sydney as Australia’s “economic powerhouse”: Melbourne is driving national economic growth… SGS Economics and Planning found that during 2018-19, the Melbourne economy alone accounted for 40 per cent of Australia’s total growth… Australian GDP expanded by 1.9 per cent but Melbourne’s own GDP


Household savings lift will drain economy

The ANZ-Roy Morgan Financial Wellbeing Report has been released, which claims that Australian household savings are running at five-year highs: Figure 8 shows that the amount of savings Australians hold in deposit and transaction accounts has increased, with mean savings rising from $29,430 in December 2014 to $41,262 in December 2018, and median savings increasing


SQM: House price boom won’t save economy

In an interview with CNBC, SQM Research’s managing director, Louis Christopher, claims that Australia’s authorities are hoping the rise in Australian dwelling values will feed through to greater confidence in the economy. However, Christopher has “serious questions” about that view because the housing recovery is not creating more jobs. Instead, unemployment is set to rise,


Migrant wage theft entrenched across Aussie economy

Fairfax’s Adele Ferguson continued her four year campaign against wage theft over the weekend, which mostly involves migrants on temporary visas: At 7-Eleven thousands of workers were students on visas who were underpaid… Since the 7-Eleven scandal there have been many more companies caught up in underpayment issues including Domino’s, Caltex, Retail Food Group, Pizza


MYEFO still too optimistic on wage growth

After years of overly optimistic wage growth forecasts: Today’s Mid-Year Economic and Fiscal Outlook (MYEFO) has significantly downgraded wage growth from the 2019 Federal Budget: The four year forecasts are shown below, which projects that wage growth will rebound to 3% by 2022-23: MB does not support these forecasts. Unemployment is expected to rise materially


CBA Flash PMI goes bust

The Recessionberg plan is going swimmingly, via CBA: The latest Commonwealth Bank Flash Composite PMI® pointed to a further marginal decrease in business activity across the manufacturing and service sectors in the final month of 2019. Weakness was particularly evident at manufacturers, which saw the sharpest decline in the 44-month survey history. On the other


Sydney’s wealthy elites are migrant NIMBYs

As we already know, Sydney is a primary entry point for migrants: And Western Sydney is the prime dumping ground for these migrants: With Western Sydney also projected to receive the lion’s share future immigration-driven population growth – i.e. an additional 1.2 million people over the next 20 years, according to the Greater Sydney Commission:


Black Friday kills Christmas retail sales

I reluctantly ducked into Chadstone Shopping Centre earlier this week to buy Christmas gifts and was pleasantly surprised by how quiet the centre was. I hate shopping – even more so during Christmas, where the crowds are infuriating. I live reasonably close to Chadstone, therefore, rode my bike to avoid car parking. However, to my