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.


Sailing barley ships show limits of Chinese power

Via The Australian: Australian barley on its way to China has been diverted mid route to Japan and the United Arab Emirates following China’s decision to impose punitive trade tariffs on the grain. Four ships carrying Australian barley have changed course or cargo after rising trade tensions led to China — Australia’s biggest barley buyer


ScoMo: No extension to JobKeeper

Speaking to Sky News this morning, Prime Minister Scott Morrison pushed back against union calls to extend JobKeeper payments beyond its legislated late-September expiry date: “These are temporary measures and it is important that we get the economy out of ICU as quickly as we can. we can’t have Australians living on borrowed money for


Australian construction work fell in Q1

The ABS has released data on the value of construction work done for the March quarter of 2020, which registered another 1.0% seasonally-adjusted decline in total construction activity over the quarter – the seventh consecutive quarterly decline – and a 6.5% decrease over the year: However, the result beat analysts’ expectations of a 1.5% decline


UBS: Consumers ready to spend, borrow

Via the excellent George Tharenou: JobKeeper revised down materially from 6.5mn to 3.5mn = $60bn less spending Australian authorities found reporting errors which saw the number of people on JobKeeper revised materially down from 6.5mn to 2.9mn. The expected peak was also cut sharply from 6.0mn to 3.5mn; reducing the fiscal cost by $60bn, from $130bn


Travel ban threatens QLD jobspocalypse

Queensland Premier Annastacia Palaszczuk continues to face mounting pressure to open Queensland’s border to interstate tourists in time for the June school holidays. This comes as Palaszczuk has signalled that the state’s borders may not be reopened to interstate travellers until September. The AFR reports today that Gold Coast hotels are facing a $6 billion wipeout


“Jobfaker”: Scotty from Marketing rebrands nothing burger reform

Via the AFR: Scott Morrison will use $1.5 billion in federal funding as leverage to force nationwide change to the skills sector, and he will call for a new Accord-style relationship with trade unions and business, to help drive an economic recovery he envisages will take between three and five years. …”We must enable our


650,000 Aussies face COVID-19 lay-offs

The majority of the Morrison Government’s COVID-19 support measures are due to conclude at the end of September. These measures include the JobKeeper program, the expanded JobSeeker allowance, and the loan guarantee scheme for small and medium businesses. Although some sections of the economy are showing signs of recovery, the majority of economists believe that


When will the left stand up for Australian workers?

For 15 years, the Australian union movement has stood by silently while Australia’s immigration program was more than doubled: The impacts on Australian workers has been terrible, with real wage growth stagnating for a decade: Chronic underemployment and labour underutilisation, which has obviously gotten much worse in the wake of the COVID-19 shock: And collapsing


10 long term implications of the virus

Via Shane Oliver at AMP: Introduction There has been much debate about the short-term economic and investment impact of coronavirus – on economic activity, unemployment, interest rates, house prices, shares, etc. However, the magnitude of the shock means it will have medium to longer-term implications as well. Of course, there is a danger in placing


Capex preview

Via the excellent Gareth Aird at CBA: The Q1 20 ABS capex survey, due on 28 May, will contain an updated estimate of 2020/21 capex plans.  Big downgrades are expected for both mining and non‑mining firms although estimating the magnitude of the downgrades is very challenging.  We suspect that there will be a big range


Master Parasites demand $40,000 new home subsidy

Last week, the Property Council of Australia (PCA) demanded a $50,000 new home boost to “kickstart the economy” by stimulating the construction of 50,000 dwellings, alongside a massive ramp-up in immigration. The Housing Industry Association (HIA) also demanded the government open borders to temporary migrants and international students to increase housing demand. Now, Master Builders Australia


Grattan Institute destroys high speed rail

Following Anthony Albanese’s pledge to build a High Speed Rail (HSR) line linking the east coast capitals if Labor wins the next election, the Grattan Institute has released a report, entitled “Fast train fever”, comprehensively demolishing the idea: Australia should dump the decades-old dream of building a bullet train from Brisbane to Melbourne via Sydney


Get ready for an immigration boom

The stars are aligning for a massive increase of immigration once the COVID-19 lockdown ends. Over the past week, we witnessed lobby groups and senior economists soften the Australian population up for a big ramp-up in immigration. It began with Australia’s chief property lobby groups, the Property Council of Australia and the Housing Industry Association,


Ross Garnaut joins Big Australia dills

Economist Ross Garnaut is the latest grey beard to demand a quick resumption in “immigration to pre-pandemic levels”: “No other developed economy of comparable size has benefited as much as Australia from the easy international movement of people – for business, pleasure, education, and to build new lives as migrants.” Australia has run an extreme


Depressionberg bans LIC commissions

Good, Chris Joye’s Flying Circus: In the AFR today I write that this is a great day for all Australian financial advisers and investors, and a brave decision by the Treasurer Josh Frydenberg, which was also vigorously advocated by Labor’s shadow financial services minister, Stephen Jones. Excerpt enclosed: By banning fund managers from paying sales commissions


Treasury flags gradual withdrawal of welfare support

The JobKeeper and JobSeeker programs are legislated to end in late-September, threatening to withdraw $120 billion of stimulus from the economy and plunging Australia into a deep economic hole: Thankfully, Treasury secretary Steven Kennedy, has flagged a “taper” of support, suggesting it will be withdrawn gradually: Treasury secretary Steven Kennedy said on Thursday that the


Seek job ads climb off canvas

Seek has released its job ads data for the week ended 17 May, which registered a strong percentage improvement off a very low base: New job ads posted on SEEK during the fortnight ended 17 May are up 26.8% compared to April 2020 average. The biggest contributors to job ad growth are Trades & Services


Retailpocalyse continues as Target stores close across Australia

Back in January I warned that the “retail bloodbath has only just begun”, given the absence of income growth, gargantuan household debt levels, and the shift in retail purchases away from bricks-and-mortar to online and digital platforms. The COVID-19 pandemic has obviously accentuated these problems, with Target the first major store chain to shutter amid


‘Fiscal cliff’ looms as JobKeeper deadline nears

University of Melbourne labour economist, Mark Wooden, says the federal government should use an upcoming review of JobKeeper wage subsidy scheme to fine-tune it. Other economists agree that the scheme should be adjusted so that it targets sectors of the economy that continue to be hardest hit by the coronavirus pandemic. Meanwhile, Danielle Wood from


CBA: Lower immigration will help lift wages

Gareth Aird, Head of Australian Economics at CBA, has written insightful research on the impacts of lower immigration on the Australian economy resulting from the COVID-19 pandemic. A key finding is that lower immigration will actually be good for Australian wages, since it will reduce labour overcapacity and improve the bargaining power of workers. Lower


Eslake: The ponzi is over

Via Bloomie: Australia’s almost three-decade expansion — a developed-world record — has largely depended on four key factors that economist Saul Eslake says are unlikely to remain completely intact in a post-Covid-19 world. Population growth, underpinned by immigration A “peculiar relationship” with China The housing boom and the debt run up along with it Good