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.


Jobs takes: Curb your enthusiam

At one end is Westpac: November’s headline employment gain exceeded expectations by a significant margin but we would caution before interpret this as suggesting an acceleration in labour demand. As we highlighted in our preview, the weaker than expected October print associated with a falling participation suggested that sample volatility may have been behind the


Insanity as immigration into Sydney and Melbourne hits record high

By Leith van Onselen The ABS has released its Australian Demographic Statistics for the June quarter of 2017, which revealed that Australia’s population continues to grow strongly led by a surge in net overseas migration (NOM), mostly into Sydney and Melbourne, which have both seen record immigration flows. According to the ABS, Australia’s population rose


Jobs go boom!

ABS Labour Force for November is out and the news is boom! Versus 19k expected: SEASONALLY ADJUSTED ESTIMATES (MONTHLY CHANGE)  Employment increased 61,600 to 12,403,000. Full-time employment increased 41,900 to 8,501,900 and part-time employment increased 19,700 to 3,901,100. Unemployment increased 4,100 to 707,700. The number of unemployed persons looking for full-time work increased 2,500 to


Jobs report signals strong

Before Labour Force at 11.30, from Westpac: It is true that the October rise in employment was softer than expected, +3.7k vs market expectations of an 18k rise, but this should be put into context that October was the 13th consecutive monthly rise in total employment. This is longest stretch of positive employment prints since the


Australian births at all-time high but fertility rate continues to fall

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released its Births 2016 survey, which recorded a 1.9% rise in births to a record high 311,104 in 2016, with the fertility rate falling marginally to 1.789, thus remaining below replacement: The next chart plots births across Australia, which have hit a record high: Below


#Sardine Sydney train crash to worsen

By Leith van Onselen Yesterday I reported how Sydney’s crippling immigration-fuelled population growth had pushed the rail network to breaking point, with one early morning incident causing mayhem well into the evening across the metropolitan train system. Today, Sydney Trains boss, Howard Collins, admitted that soaring passenger demand means the train system is stretched beyond


Consumer sentiment bounces

Via Westpac: • The Westpac Melbourne Institute Index of Consumer Sentiment rose 3.6% to 103.3 in December from 99.7 in November. This is a surprisingly strong result and confirms the lift we have seen in the Index over the last three months. The average reading for the Index in the December quarter is 5% above


Australia needs more TAFE not more unis

By Leith van Onselen The Mitchell Institute’s 2017 report has been released, which shows that while funding to universities has skyrocketed over the past decade in real terms, funding for vocational education and training (VET) has plummeted to a decade low. From The Conversation: The chart below shows the trends in expenditure over an 11-year


Australia has world’s lowest skills shortages, Malcolm

By Leith van Onselen The argument that Australia needs to maintain a turbo-charged skilled migrants intake (both permanent and temporary) to alleviate skills shortages was recently shot to pieces by the latest Department of Employment skills shortages report, which showed that Australian skills shortages “continue to be limited in 2016-17”, and that there are a


Bad Santa dead on arrival

He’s dead on arrival: Retailer euphoria over Amazon’s less than spectacular Australian launch is fading fast as trading conditions deteriorate in the lead-up to Christmas. As foot traffic in shopping centres declines and consumers cut back on discretionary purchases, retailers have been forced to pull forward discounting to compete against Amazon and lure cash-strapped shoppers. According to a Citigroup report, sales conditions


#SardineSydney’s trains hit breaking point

By Leith van Onselen Another week, another #SardineSydney story in the mainstream media on how the city’s population is swelling way above the capacity of its infrastructure. The latest example relates to Sydney’s long suffering trains, where skyrocketing passenger numbers have again caused chronic crush-loading chaos. From The ABC [my emphasis]: Sydney Trains has apologised


NAB Business Survey crashes back to earth

The dream is over for the NAB survey: Last month’s surprise spike in business conditions was more than unwound in November, although that was partly expected. Despite the drop, business conditions remain well above the long-run average and are at solid levels across most of the economy. Forward orders were stronger as well. The construction


Turnbull bald-faced lies in Q&A mass immigration defence

By Leith van Onselen Last night, the following question was asked on ABC’s Q&A, which garnered the above pathetic response from Prime Minister Malcolm Turnbull: POPULATION GROWTH BILL EDGE asked:Could you explain why you are allowing approximately 200,000 people to immigrate to this country every year & are there any plans to limit this intake


Low-skilled crushed between automation and mass immigration

By Leith van Onselen Janine Dixon and Nhi Tran, economists at the Centre of Policy Studies at Victoria University, have produced research warning that low-skilled workers across Australia risk being left behind, worsening inequality and eventually dragging on the economy. From The AFR: Modelling by Dr Dixon and Ms Tran shows the real (after inflation)


Population ponzi overruns maternity wards

By Leith van Onselen Remember this chart? It shows that Victoria’s population surged by an all-time high 149,374 people in the year to March 2017: And remember this chart showing that Melbourne’s population grew by a record 126,175 in 2016: As well as this chart showing that the lion’s share of Victoria’s (Melbourne’s) population growth


Great Barrier Reef dead by 2100

Buy Bitcoin: Coral reefs – including Australia’s Great Barrier Reef – will be dead by 2100 due to human “maltreatment of the oceans”, David Attenborough’s Blue Planet II has declared. Attenborough’s follow-up documentary series, which took four years to film and produce, finished airing in Britain on Sunday night (local time). It ended with his grim warning about the state of our


Outrageous predictions for 2018

Via Saxo comes the Outrageous predictions for 2018: Fed loses independence as US Treasury takes charge Treasury enacts 2.5% yield cap after massive spike Bank of Japan loses control of its monetary policy USDJPY rises to 150 and then collapses to 100 China issues CNY-denominated oil futures contract Petro-renminbi surges, USDCNY below 6.0 Volatility spikes on


Abuses pile upon Australia’s coolie army

Australia’s last journalist standing, Adele Ferguson, has done it again: Gold Coast-based RFG is the country’s biggest food franchise operator, whose brands include Donut King, Brumby’s, Gloria Jean’s, Pizza Capers, Crust Gourmet Pizzas and Michel’s Patisserie. It has a market capitalisation of about $800 million and claims to have more than 2500 stores. Since listing on the ASX


Why wages aren’t growing (and aren’t going to)

Treasury released a large and very good study Friday: On a variety of measures, wage growth is low. Regional mining areas have experienced faster wage growth, but wage growth has slowed in both mining and non-mining regions. Wage growth has been fairly similar across capital cities and regional areas, although the level of wages is


Bill Evans: Consumer tapped-out

Via Bill Evans at Westpac: Both the Reserve Bank and Treasury will be disturbed by the details behind the September quarter national accounts which printed on December 6. The accounts showed that the Australian economy expanded by a less than expected 0.6% in the September quarter to deliver an annual growth rate of 2.8%. We


AGL plans endless energy shock

From the AFR: AGL Energy has rejected Turnbull government pressure to extend the life of the coal-fired Liddell power station and instead revealed a $1.36 billion plan to replace it with electricity generated from gas, wind, solar and other supply. In a blunt rebuff of Canberra’s request for the 45-year-old Hunter Valley plant to be either sold