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.


Inside Australia’s half trillion dollar “liar loan” nuclear time bomb

So you want know what drives the bubble? Make sure you’re sitting down because here it is, cross-posted from the always excellent Jonathon Mott at UBS: Work Undertaken Between 7th of July and 4th of August 2017 UBS Evidence Lab conducted an online survey of 907 Australians who had recently taken out a mortgage to buy


Household finance confidence continues to weaken

By Martin North, cross-posted from the Digital Finance Analytics Blog: Digital Finance Analytics has released the August 2017 edition of our Household Finance Confidence index, which uses data from our 52,000 household surveys and Core Market Model to examine trends over time. Overall, households scored 98.6, compared with 99.3 last month, and this continues the


RBA, Treasury plan Victoria’s rat treadmill economy for all

By Leith van Onselen Apparently, Australia’s future productivity, income and jobs will be driven by piling tens-of-thousands of extra people into Australia’s cities each year selling services to each other. From The Australian [my emphasis]: Both Treasury and the Reserve Bank are looking to the services sector and business services in particular to drive Australia’s


Bob Brown, Laura Tingle, Richard Denniss, Ross Gittins back Dick Smith

By Leith van Onselen The Australia Institute’s chief economist, Richard Denniss, has started an excellent new podcast entitled The Lucky Country, which this week included a segment (from 23.00) discussing Dick Smith’s campaign to lower Australia’s immigration intake back to the historical level of 70,000 people a year, while at the same time increasing the


Scott Morrison is completely lost on wages

By Leith van Onselen The biggest unicorn in the May Budget was the laughable assumption that Australian workers would enjoy a wages explosion over the forward estimates: With last month’s wages growth data for the June quarter badly disappointing, Treasurer Scott Morrison tried to put lipstick on a pig, claiming wages were in fact growing


Victorians are justified in disliking privatisation of public assets

By Leith van Onselen Federal Opposition leader, Bill Shorten, has tapped into the perceived voter angst surrounding the privatisation of public assets, claiming that former Victorian Premier Jeff Kennett’s privatisation of the state’s electricity network has lead to rising electricity prices. From The Australian: “Anyone who has been to Victoria and lived in this state


How long will the infrastructure boom last?

The AFR is excited: The infrastructure boom could last longer than the mining boom, engineers have forecast as rising job vacancies on hundreds of projects, worth more than $100 billion around the country push up engineering and construction wages. “The jobs data is as clear as a bell, we’re on the up,” said Brent Jackson,


Roy Morgan unemployment rises to 10.2% in August

By Leith van Onselen The latest Roy Morgan Research (RMR) unemployment estimate for August registered a 0.8% rise in the unemployment rate over the month but a 0.2% decline over the year, with underemployment also rising significantly: Below are the key points from the release: In August 1.324 million Australians were unemployed (10.2% of the


Ross Gittins backs Dick Smith

By Leith van Onselen Seeing as Fairfax’s chief economics correspondent, Ross Gittins, has seemingly been gagged by his employer from entering the immigration debate, and given the relevance to the Dick Smith Fair Go campaign, find below a 2015 video by Ross Gittins expertly articulating why mass immigration makes ordinary Australians worse-off, implicitly backing today’s


Automation or immigration the cure for an aging population?

By Leith van Onselen For years the growth lobby has argued that Australia needs to run high levels of immigration in order to alleviate so-called skills shortages and to mitigate an ageing population, despite the Department of Employment showing that Australia’s skills shortage “remains low by historical standards” and Australia’s labour underutilisation rate tracking at


Lost decade rolls on for Australian households

By Leith van Onselen I cannot ever recall a time when the nation’s production, as measured by real GDP, has diverged so much from the growth (or lack thereof) in ordinary Australian’s living standards. To illustrate why, I have once again deflated three measures of the domestic economy, as provided in the March quarter national


FIRE sector vampire continues to devour its host

By Leith van Onselen Wednesday’s national accounts release for the June quarter confirmed that Australia’s FIRE economy – Finance, Insurance and Rental, Hiring & Real Estate Services – continues to eat its host, rising to a new record high (12.1%) share of the Australian economy: Since financial markets were first deregulated in the mid-1980s, the


The costs of a casual job outweighs any pay benefits

Cross-posted from The Conversation: Workers aren’t being compensated as much as they should be for precarious work in casual positions. One in four Australian employees today is a casual worker. Among younger workers (15-24 year olds) the numbers are higher still: more than half of them are casuals. These jobs come without some of the


Good time to build an Aussie bridge

Most of the Aussie GDP broker reports out today are cautiously optimistic. The following from Morgan Stanley is less so and much closer to the truth: 2Q GDP came in at +0.8% qoq (1.8% yoy), slightly missing consensus on household services. Income/savings trends reinforce our concerns around the consumer ‘Crunch Time’, although public investment has


Construction PMI boom eases

From the AIG: ▪ The seasonally adjusted Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) registered 55.3 points in August. This was down by 5.2 points from the previous month, indicating a slower rate of industry growth following July’s record high reading of 60.5 points (readings above 50.0 points indicate expansion


Scott Morrison’s quaint faith in failed ‘trickle down’ economics

By Leith van Onselen Apparently, Australian workers don’t deserve a pay rise until corporations take an even bigger slice of the nation’s income. Oh yeah, and they need a tax cut too! From [Morrison] did acknowledge wage growth would be constrained until company profits and productivity increased. “There’s no chicken and egg conundrum when


ABC The Drum counters immigration bias claim with more bias

By Leith van Onselen Back in April, ABC’s The Drum aired a shockingly biased segment on the population (immigration) debate, which featured three avid mass immigration spruikers (including Fairfax’s Peter Martin) all pushing the Big Australia agenda. Last night, The Drum aired another biased segment defending itself against The ABC’s alleged bias on the immigration


There is nothing below house prices except thin air

The headlines yesterday were for improving Australian growth as the Botox Boom takes a hold, but under the hood it was ugly. Domestic demand is now hanging by a single fiscal thread and the outlook is for more of the same: Private investment is still shrinking and household consumption is very weak despite a tumbling savings


Aussie workers’ economic share falls to 53-year low

By Leith van Onselen Yesterday’s national accounts release for the June quarter revealed some depressing news for Australian households. While the broader economy posted a 1.8% rise in real GDP over the year, Australian workers’ continued to slide backwards. The key chart was the following showing that the average compensation of employees fell by 0.2%