The trade spat with China is being used by the Coalition as an excuse to launch a bunch of dud ‘free trade’ agreements (FTAs): Australia will pursue trade agreements with Israel, Switzerland, Norway, Middle East and Latin American nations next year to open up new markets amid China’s “unfair, unjust and unwarranted” targeting of exporters…
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.
The Federal Budget forecast net overseas migration (NOM) to turn negative for the first time since the Second World War, recording declines of -71,600 in 2020-21 and -21,600 in 2021-22, before recovering to 95,900 in 2022-23 and 201,100 in 2023-24: The ABS’ quarterly population data provided the first evidence of this immigration collapse with NOM
Following Thursday’s ABS labour market release, CBA’s head of Australian economics, Gareth Aird, noted that border closures are helping to support Australia’s labour market recovery: In recent years the Australian economy has needed to generate growth in employment of around 18ka month to keep the unemployment rate from rising. A decent rate of jobs growth
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Regular readers will know that I am a harsh sceptic of Victoria’s economic model, penning dozens of articles over the years criticising the state’s over-dependence on mass immigration and population growth to drive the economy, rather than productivity and export driven growth (read my most recent report here). Bob Birrell and Ernest Healy from the
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Roy Morgan Research projects strong post-Christmas sales across Australia, with the exception of Victoria: Roy Morgan’s annual post-Christmas retail sales forecasts conducted in conjunction with the Australian Retailers Association (ARA) project Australians are set to spend $19.46 billion across retail stores during the post-Christmas trading period, an increase of 3.9% from a year ago. The
From Roy Morgan Research: Of all Australians 59% now think 2021 will be ‘better’ than 2020 – the highest positive view on the year ahead since 2009 following the Global Financial Crisis, a special Roy Morgan web survey conducted in November finds. A further 17% say 2021 will be ‘the same’, an all-time record low
Academics from three WA universities are calling for a royal commission into higher education. They argue that an obsession with university rankings and publishing research has overtaken universities’ fundamental mission: to deliver quality education to Australian students. From The SMH: West Australian universities are on a dangerous path, according to WA academics who say the
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Australia was so close to fully eliminating local transmission of COVID-19. As of Tuesday, we had only one locally acquired case nationally in New South Wales. Then yesterday, New South Wales recorded its first locally-acquired cases of COVID-19 since 3 December. Health authorities have commenced contract-tracing and genome sequencing after a man in his 70s
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Last month, Treasurer Josh Frydenberg declared war on corporate regulator ASIC over its enforcement of responsible lending rules, stating that the regulator needs to be overhauled so it conforms to the will of parliament: “They must pursue their mandates in a manner that is consistent with the will of the parliament,” he said. “There need
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Deloitte Access Economics partner David Rumbens says the Christmas trading period is critical for retailers in any year, but the COVID-19 pandemic means it will be more so in 2020. Rumbens notes that coronavirus measures such as government stimulus payments have resulted in fewer retailers going into administration compared with 2019. However, he cautions that
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