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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ANZ job ads still booming

Via ANZ: ANZ Australian Job Ads growth accelerated to 7.2% m/m in Feb, despite five-day lockdowns in WA and Vic. #JobAds is now 13.4% above its pre-pandemic level, equivalent to an additional 20,500 jobs being advertised on average per month. #ausecon @cfbirch pic.twitter.com/hhQDelIiAc — ANZ_Research (@ANZ_Research) March 1, 2021

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Immigration collapse is no ageing disaster

Suncorp Group chair Christine McLoughlin has called on the federal government to expedite the opening of Australia’s international border. She claims that businesses are suffering from the ban on international visitors, such as international students, migrant workers and tourists. She also claims that the economy will suffer from having a smaller, older population: “We’ve got

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Is the Coalition the party of low wage growth?

The Guardian’s Greg Jericho has posted an article claiming that the Liberal’s economic agenda is built around “lower taxes for companies and the wealthy, and lower wages for everyone else”. Jericho’s thinking goes like this: The Morrison Government has refused to lift JobSeeker to a subsistence level; It has introduced a new hotline for employers

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SEQ on track to land 2032 Olympics

Earlier this week, the International Olympic Committee (IOC) named South East Queensland (SEQ) as its preferred host for the 2032 Olympic Games. It is believed the IOC could formally award SEQ the games as early as July. Queensland Premier Annastacia Palaszczuk says the IOC is impressed that it already has up to 90% of the needed

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QLD plays hard ball on hotel quarantine

Last month, the Queensland Government hatched a plan to shift quarantine from Brisbane hotels to a regional mining camps in Gladstone and Toowoomba. However, Prime Minister Scott Morrison stupidly scuttled the plan claiming resources workers could become infected and thus hamper Australia’s economic recovery. Now Queensland has attempted to hold the federal government to ransom

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How to solve farm labour shortages

Since the coronavirus pandemic struck last year, shutting Australia’s international border, we have heard incessant pleas from farmers to allow migrant fruit pickers into the country. We are told that without these migrant workers, fruit will shrivel on the vine and vegetables will rot on the fields, leaving farmers deeply out of pocket financially and

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Will the RBA target house prices like RBNZ?

Will the RBA target house prices? Sure it will. To push them higher. There is literally zero prospect of it doing anything else at this stage. And a negative probability of the Morrison Government following recent moves by New Zealand’s Ardern Government to force responsibility for house prices onto the RBNZ. The AFR is asking

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Trans-Tasman travel bubble dealt fatal blow

The Trans-Tasman Travel bubble, which promised to allow unrestricted two-way travel between Australia and New Zealand, has been dealt a fatal blow with Queensland, New South Wales and Victoria each imposing new restrictions on Auckland arrivals following new community virus transmissions across the city. Overnight, New South Wales and Victoria reclassified Auckland as a virus

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Aussie CFO sentiment surges to decade high

Deloitte has released its 10th biannual CFO Sentiment survey covering the second half of 2020. The survey shows that CFO sentiment has surged to a decade high on the back of the economy’s “V-shaped” recovery, including the strong rebound in employment and decade high consumer confidence. 72% of CFOs are now feeling optimistic or highly

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Frydenberg Unstimulus sinks into capex funk

Capex intentions are out from the ABS. These figures are estimates for the next eighteen months of business investment, direct input into GDP. They are better than some feared but still not well. Via ABS: Total capital expenditure Estimate 5 for 2020-21 is $121,428m. This is 4.8% higher than Estimate 4 for 2020-21. Estimate 1

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COVID-19 saved Australian lives

Data from the Australian Bureau of Statistics (ABS) shows that 126,974 certified deaths were recorded nationwide between January 1 and November 24, down from a baseline average of 127,872 over the past 5 years. In particular, there were only 42 deaths from influenza during this period, although all but two occurred before 22 April. Australian

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CBA: Iron ore to crash in 2021

Gareth Aird, head of Australian economics at CBA, has written a new note examining the outlook for Australian commodity prices in 2021. Aird sees commodity prices “remaining well supported in 2021” on the back of “momentum in the global economy”. This will keep Australia’s terms-of-trade elevated in 2021, thus supporting national income as mining profits

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HomeBuilder drives big residential construction rebound

It is hard to deny that the Morrison Government’s HomeBuilder subsidy has given a much needed ‘shot in the arm’ to Australia’s housing construction industry. Under Homebuilder, the federal government provided $25,000 grants to underwrite the construction of new homes or major renovations for contracts signed before 31 December 2020. The scheme was later extended

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Should workers be forced back to the CBD?

The Melbourne City Council continues to plead with the Victorian Government to order workers back to the CBD to boost economic activity and support business. At a council meeting earlier this week, Lord Mayor Sally Capp said “our city businesses are absolutely crying out for the return of city workers” and claimed that “every city

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Australia’s visa system has undercut workers

Last year, Labor’s immigration spokesperson Kristina Keneally controversially called for Australia to cut immigration to “put Australian workers first”: “The post-COVID-19 question we must ask now is this: when we restart our migration program, do we want migrants to return to Australia in the same numbers and in the same composition as before the crisis? Our

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Consumer confidence falls for third straight week

The weekly ANZ-Roy Morgan consumer confidence index has fallen for the third consecutive week to sit at levels just below the historical average: The key points from the release are as follows: Consumer confidence was down 0.6%, even as Victoria emerged from its brief circuit-breaker lockdown. The details were mixed – confidence around economic conditions

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Aussie wage growth remains near record lows

Australian wage growth remained near record low levels in the December quarter of 2020, according to new data released today by the Australian Bureau of Statistics (ABS). Overall wages grew by only 1.42% in the 2020 calendar year, marginally above the September quarter’s all-time low of 1.36% recorded in the year to September. The private

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Collapsing immigration boosts Australia’s workforce participation

Following the 1982-83 and 1990-91 recessions, Australia’s labour force participation rate – defined as the sum of all workers who are employed or actively seeking work as a share of the total working-age population – fell significantly. For example, between 1990 and 1993, Australia’s participation rate fell by 1¾ percentage points as the economy entered

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How to fix Australia’s busted quarantine system

The Grattan Institute has released a new podcast episode, entitled How to Fix the Hotel Quarantine System, which encourages Australia’s governments to: Move quarantine for travelers from higher-risk nations like the United States and United Kingdom out of densely populated, poorly ventilated city hotels to low density, open air facilities like regional military bases. Ensure

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Automation eliminates need for mass immigration

The business lobby, policy makers and the federal government have for years run the argument that Australia needs to run a mass immigration program to overcome future skills shortages. The argument generally goes something like this: Australia’s population is ageing fast and with the large baby boomer cohort headed into retirement, Australia is facing an