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.


Rating agencies warn on public sector pay rises

Earlier this week, Victoria’s public sector union reached agreement with the Andrews State Government regarding a pay rise for public servants. A 2% pay rise was awarded, along with a mobility clause and 16 weeks’ parental leave for primary and secondary carers, which effectively increased the pay rise to more than 3%: Treasurer Tim Pallas


Australian manufacturing is not coming back

Via the ABC: The widespread shutdown of global supply chains caused by COVID-19 has been good news for Adelaide metal printing company AML3D. “We’ve seen quite a reasonable increase, probably two-fold from what we would normally get,” founder and managing director Andy Sales said. His company makes metal parts, such as propellers and compressors for


Victoria’s economy slaughtered by COVID-19

The Victorian Government has released its mid-year economic update, which projects that the state’s unemployment rate will rise to 9% by the end of September. This compares with 7.5% in June and 5.3% in January. The modelling also shows that gross state product could fall by $21 billion in 2020: Overview The coronavirus (COVID-19) pandemic


NSW outbreak tracking VIC

Nineteen new cases today: 19 new cases of #COVID19 have been diagnosed in NSW between 8pm on 21 July and 8pm on 22 July. For the latest list of COVID-19 locations, visit: — NSW Health (@NSWHealth) July 23, 2020 More: That is freakin’ everywhere. The chart versus VIC is not encouraging though it


Victoria records another 403 COVID-19 infections

The nightmare continues with Victoria recording another 403 COVID-19 infections: NSW has yet to report today’s infection numbers. There are now 3,793 active COVID-19 cases in Victoria, 97% of the nation’s total: 7,125 Victorians have now been infected by the virus since the beginning of the outbreak, with the curve as frightening as ever:


Australia must fix hotel quarantine

Being an island nation, having a robust quarantine system for returning Australian citizens and permanent residents is the nation’s number one defence against COVID-19. Without an effective quarantine system, Australia will continually import the virus into the community, resulting in ongoing outbreaks, an overloaded health system, and costly economic shutdowns. Victoria is indicative of what


COVID-19 drives up Australia’s mortality rate

The ABS has released provisional mortality data, which suggests that COVID-19 has indirectly increased Australia’s mortality rate, primarily by diverting health resources and effort away from other areas: In the second provisional monthly mortality report released today, the ABS found that between January and April this year there were around 44,000 doctor certified deaths. This


Mortgagee and renter confidence craters

Via Martin North: The latest results from our household surveys reveals that after a small recovery last month, confidence has deteriorated again. This is data to mid July, and includes the recent impact of renewed lock-downs in some areas. Indeed, significantly the Melbourne lock-down, and the broader concerns about COVID are responsible for the latest


AMA calls for nation-wide mask policy

Australian Medical Association (AMA) President Tony Bartone is calling for a nationwide mask policy, arguing Australia would not be in the position it was now if masks were more prevalent earlier in the pandemic: “We’re recommending that it should be extremely, ubiquitously recommended everyone wear a mask to reduce the spread,” he told Sky News.


Migrant groups demand JobKeeper for temporary visa holders

As expected, migrant groups have slammed the exclusion of temporary visa holders from JobKeeper 2.0: The Migrant Workers Centre’s director Matt Kunkel said their fears many migrants could face destitution had been realised with community groups seeing a surge in temporary visa holders requiring support. “This government seems intent on forcing temporary visa holders into


Electricity prices slump briefly with gas

Don’t hold your breath. At the AFR: Wholesale electricity prices traded at the lowest in five years as the coronavirus lockdown crimped energy demand, especially from businesses in NSW and Queensland. The latest quarterly report from the Australian Energy Market Operator confirmed the downward trend in prices over the past 18 months. Average spot wholesale


Retail sales bounced in June

The ABS has released preliminary retail sales data for June, which rose by 2.4% over the month to be 8.2% higher year-on-year: There were large increases in turnover in Cafes, restaurants and takeaway food services, and Clothing, footwear and personal accessory retailing. While some restrictions on trade remain, many businesses saw a full month of


Leading index raises an eyebrow

Via 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, rose from –5.29% in May to –4.44% in June. Despite another modest improvement this month, the Index growth rate remains in


Melbourne’s hotel quarantine failures exposed

More shocking details have emerged over the Victorian Government’s hotel quarantine failures, with ABC’s 7.30 Report revealing that private security guards were employed without training over WhatsApp and told to bring their own personal protective equipment (PPE): Shayla Shakshi was one of the guards who received a WhatsApp message offering her work as a quarantine


Melbourne stalls jobs rebound

Callam Pickering, economist at global jobs site Indeed, has updated his weekly jobs ad series, which shows that net job ads – i.e. those on Indeed AU for seven days or less – continue to stall: These are tracking 18% below last year’s trend, versus 17% below a week ago. However, total job postings continues


Why Australia should go for COVID-19 elimination

The ABC has done an excellent report debating whether Australia should copy New Zealand, South Australia, Western Australia and Tasmania in aiming for COVID-19 elimination. Life in New Zealand, for example, has for all intents and purposes returned to normal, with the exception of international travel. Accordingly, their economy has bounced back hard. My view


Stimulus drives big surge in discretionary retail spending

According to AlphaBeta’s real-time economy tracker, discretionary retail spending has bounced on the back of $750 of stimulus payments sent to around 5 million people, alongside the surge in early superannuation withdrawals: However, Victoria is underperforming due to the hard lockdown across Melbourne: According to AlphaBeta’s director, Andrew Charlton: “It’s pretty mind-blowing how quickly people


$8bn property parasite rorts JobKeeper

Via Michael West: Mirvac, an $8 billion property juggernaut, is claiming the JobKeeker subsidy. Michael West reports on large corporations rorting taxpayers by pocketing their employees’ PAYG tax while avoiding their obligation to pay entitlements to workers they have sacked. While regaling shareholders with big-ticket commercial property spending proposals, Mirvac has concocted a devious plan to usurp


JobSeeker payments slashed

Prime Minister Scott Morrison and Treasurer Josh Frydenberg have fronted the media to explain changes to JobKeeper and JobSeeker following their legislated expiry in late September. JobSeeker payments will be slashed to $815 a fortnight from September from $1,100 currently. Mutual obligations will also return from 4 August with those on JobSeeker required to apply


Ignore credit card spending data

A little brouhaha today around new CBA credit card data:   I have been warning against using this as a guide to consumption for some time. This is based on experience. I have seen huge leaps in spending in the past that did not register at all in wider consumption. The state breakdown makes the