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.
By Leith van Onselen Back in April, the Committee for Adelaide demanded that the appallingly low salary floor for ‘skilled’ migrants be lowered to reduce costs for business: Committee for Adelaide member and prominent migration agent Mark Glazbrook told parliament “a successful migration program… needs to be based on demand and it needs to be
Shane Wright is doing a decent job at Domain recently. Today he peers into the anus of the services economy and does not like what he sees: According to the ATO, in 2016-17 (the last year for which there are a full set of figures), 360,000 firms used the [instant asset write-off] scheme with the
There is no private sector growth left, which was nicely pointed out by Greg Jericho: Over the past year government consumption and investment contributed 1.4% points towards total GDP growth of 1.7%. That effectively means government spending accounted of 79% of GDP growth in the past year – a level only marginally below what happened
The Australian Government’s latest official temporary visa data revealed that international student numbers hit an all-time high 613,000 in the year to March 2019: The number of student visas on issue as at March 2019 were 77,000 (14%) higher than March 2018 and 285,000 (84%) higher than March 2013. This growth has been driven by
Australian employer groups frequently claim that a strong ‘skilled’ migration program is required to overcome perceived labour shortages – a view that is shared by Australia’s state and federal governments. However, the available data does not support their assertions. First, while Australia’s is said to run a ‘skilled’ migration program, the Productivity Commission’s (PC) 2016
Over many years, MB has received frequent reports of overcrowding across Melbourne’s schools (e.g. here, here and here). The story is always similar: the acceleration in immigration, high-rise apartments and fringe housing developments are dramatically driving up student numbers, resulting in schools being crush-loading. Forecasts frequently suggest that student numbers will balloon, thereby requiring the delivery
Take a look at the latest domestic demand chart from Q1 GDP: The arrow is Q1. I have extrapolated out the next year using the following assumptions: a slight improvement in consumption; a slight softening in public demand as infrastructure peaks; zero business investment growth given that is where we are trending to despite what
Poor old Josh Recessionberg, he never expected to win and his cupboard is bare, via the AFR: The federal government is prepared to expand its economic policy agenda beyond the measures it took to the election to boost Australia’s lagging productivity performance, Treasurer Josh Frydenberg says. …”We’re firmly sticking to all our election commitments and
And herein lies the problem. Via AIG: No matter what happens to property or fiscal stimulus, on the current trajectory this index has a year of falls ahead and possibly two. Full report.
By Leith van Onselen The March quarter national accounts was another shocker for Australian households. According to the ABS, the real average compensation per employee rose by only 1.5% in the year to March 2019, and was 3.2% lower than March 2012: Yesterday, the Reserve Bank of Australia (RBA) also released real household disposable income
The Department of home affairs’ latest quarterly visa data showed that international student numbers hit a record high 613,000 in the year to March 2019, up 77,000 over the past year and 280,000 since March 2013: However, the composition of students is clearly shifting away from China towards India and Nepal, according to official government data:
The nightmare is real, says MS, which lowered its Aussie growth outlook to 1.8% today: The other driver of household spending weakness was the savings rate increasing … In our view this reflects the pressures on household de-leveraging, in an environment of low wage growth, elevated debt and falling house prices. This may also limit the
By Leith van Onselen Another report has emerged warning that Australia’s migrant slave economy is putting downward pressure on wages: Wages and working conditions could take a hit if ‘gig economy’ jobs such as takeaway delivery continue to expand, researchers of a new study have warned. In 2017 the researchers spoke to 58 Uber Eats
By Leith van Onselen The Australian Bureau of Statistics (ABS) today released trade data for the month of April, with Australia’s trade surplus flat at $4.9 billion: The below chart shows that Australia’s trade surplus is running near the highest level on record: Both exports (credits) and imports (debits) rose: In seasonally adjusted terms, goods
By Leith van Onselen Data from the Australian Securities & Investments Commission (ASIC) highlights the impact of the crashing property market on the construction industry. Some 153 building firms across Australia were placed in administration during March, including 64 in New South Wales. From The AFR: Building industry insolvencies have risen to a four-year high
By Leith van Onselen The latest Roy Morgan Research (RMR) unemployment estimate for May jumped 1.4% to 10.3%, and was also down 0.5% year-on-year: Labour underutilisation also rose to 19.5%. Below are the key points from the release: In May 1.37 million Australians were unemployed (10.3% of the workforce) with an additional 1.22 million (9.2%)
By Leith van Onselen New figures show that fewer than 157,000 people began traineeships or apprenticeships during calendar 2018, a decline of 3.7% year-on-year. The number of people completing such courses in 2018 fell by 5.5% in 2018, and crashed 43.5% over the last five years. Jenny Lambert of the Australian Chamber of Commerce &
By Leith van Onselen Auckland and Sydney have much in common. Both are the largest cities in their respective nations. Both are harbour cities. Both have ridiculously expensive housing, with median dwelling values that hover near the $1 million mark. And both are the international gateways to New Zealand and Australia, and thereby attract the
By Leith van Onselen Western Australia’s economy continues to whither on the vine, with yesterday’s national accounts recording a fifth consecutive quarterly decline in final demand, falling by 0.3% in the March quarter: As shown above, the Western Australian economy is experiencing its fourth recession when measured by real final demand. Meanwhile, annual final demand
Honestly, they never learn. This time from Alexandra Heath, Head of Economic Analysis at the world’s happiest central bank: Introduction Good morning and thank you to the AMEC for the invitation to be here today. The resource sector makes a significant contribution to the Australian economy. It accounts for about 20 per cent of business investment and almost 60 per cent
By Leith van Onselen Australia’s production, as measured by aggregate real GDP, continues to diverge wildly 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 accounts (released yesterday), by the ABS’ population
Earlier this week, the Herald-Sun reported that gangs have been targetting Chinese international students near Monash University, with 13 separate violent attacks at knifepoint reported over the past 18 days. The assaults have prompted Federal Education Minister, Dan Tehan, to ask his Department to examine ways to ensure student safety in order to protect Australia’s
By Leith van Onselen The Australian Bureau of Statistics (ABS) today released the national accounts for the March quarter, which registered soft 0.4% growth in real GDP over the quarter and 1.8% growth over the year. On a per capita basis, real GDP was flat over the quarter, which follows the September and December quarter’s
The ABS is out with Q1 Aussie GDP and the news is more weakness at 0.4 for the QTR and 1.8% over the year: March key figures Dec Qtr 2018 to Mar Qtr 2019 Mar Qtr 2018 to Mar Qtr 2019 % change % change GDP (Chain volume measure) Trend 0.3 1.7 Seasonally adjusted 0.4
By Leith van Onselen With Australia’s population forecast to rise to about 27 million by 2022, Population Minister Alan Tudge claims a federal government policy requiring new migrants to settle in regional areas will help reduce congestion in Sydney and Melbourne, with the policy slated to come into effect on 1 July. From The Australian:
Via the AIG: Employment back in the positive column. Full report.
By Leith van Onselen Monday’s March quarter Business Indicators release from the ABS, which feeds into the national accounts, showed that wages & salaries remain wildly divergent from business profits. As shown in the next chart, real business gross operating profits continued to boom in the year to March: Whereas, there remained a huge gulf
For the second consecutive year, auditor generals in New South Wales, Victoria and Queensland warned that universities have become dangerously reliant on income from international students. From The AFR: The strongest words were in NSW, where the state Auditor-General said two universities sourced over 73 per cent of their overseas revenue from one country, China,
There will be more of this H2, via Domain: Telstra chief executive Andy Penn said a sharemarket float of struggling pay-TV platform Foxtel remains on the table, while confirming he will slash tens of thousands of contractor jobs at the telecommunications company. The telco has cut 5000 positions from its indirect workforce over the past
Cross-posted from Independent Australia: THE ELECTION OFFERED no respite from Australia’s radical immigration economy. We could crank it up higher, under the Coalition. Even more so, via Labor. In 2017 and 2018, net migration clocked about 240,000. The Budget grows that by 30,000. But permanent migration drops by 30,000. How good are bridging visas? The long haul is real news. Only
