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 Last week’s NAB Business Survey revealed crashing confidence and conditions, with trading, profitability and employment all plummeting: Now Roy Morgan Research has released its Business Confidence Survey for January, which reveals that confidence has crashed to its lowest level since August 2015 and recorded the worst January reading on record: Driving
By Leith van Onselen Late last year, the endless immigration-driven population flood drove Sydney’s train network into meltdown: Pressure on Sydney’s Town Hall train station has grown significantly during peak periods due to a 23 per cent surge in passengers in just three years, raising the prospect of staff limiting access to platforms more often
By Leith van Onselen Recall Phil Lowe’s optimistic outlook for the Australian labour market: The outlook for the labour market remains positive. The national unemployment rate currently stands at 5 per cent, the lowest in over seven years (Graph 5). In New South Wales and Victoria, the unemployment rate is around 4¼ per cent. You have to go back to
Via NAB: “Anxiety increased most over the cost of living, and despite a healthy labour market, concerns over job security also climbed to its highest level since mid-2016.” “In terms of household finances, retirement remains the big worry, followed by providing for the family’s future, raising $2,000 for an emergency, and medical and healthcare costs.
By Leith van Onselen Over the past year or so, I have ridiculed the new found push by Coalition politicians towards decentralisation, noting that this is a pipe dream based on the settlement pattern of new migrants, which have overwhelmingly chosen to flood the major cities. My view was initially based on data from the
By Leith van Onselen The Australian National University’s (ANU) Centre for Social Research & Methods estimates that household income has increased by 8.5% over the last three years. However, the increase in the cost of living over this period means that real income per person has fallen by 2.9%. The analysis also shows that so-called
Not much joy from the AIG. Check out apartments: More: Construction sectors: Apartment building (24.9 points trend) was the weakest performing sector, declining for a tenth consecutive month and at the sharpest rate since July 2012. House building (34.4 points trend) also remained in negative territory with its rate of contraction the most marked in close
By Ross Elliott, cross-posted from The Pulse: “Around the world, the vast majority of people are moving to cities not to inhabit their centres but to suburbanise their peripheries. Thus when the United Nations projects the number of future ‘urban’ residents… these figures largely reflect the unprecedented suburban expansion of global cities.” That’s from the
By Leith van Onselen A fortnight ago, the Victorian Government called for a review of entry requirements into Australian universities after growing evidence had emerged that foreign students with poor English language proficiency are badly eroding education standards and placing undue strain on lecturers and university staff. This was immediately followed by academics admitting to Fairfax
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released its cost of living indices for the December quarter, which revealed a rise in cost of living pressures across most cohorts: According to the ABS, the cost of living for households headed by working Australians rose by 1.9% in the year to December
Nick Scali produced a good result today: But this spoiled the party: Looks like the consumer retrenchment that began in December got worse in January. Not that the market read that bit, gapping up instead of down!
By Leith van Onselen Shadow Treasurer Chris Bowen delivered the Chifley Oration in Melbourne on Monday, whereby he argued that economic growth is too low, more than a million Australians are under-employed, and “far too many” workers are being underpaid: Under the Liberals, the economy is not working for working people… Too many Australians are being
Policy error is the name of the game at the Australian central bank. Witness: house prices in Australia’s two largest cities are in outright crashes; it is spreading steadily to other capitals; building approvals are crashing coast to coast; infrastructure investment has topped out; credit is swiftly falling towards zero; the NAB business survey has
By Leith van Onselen Yesterday’s retail sales figures should add next to nothing to Australia’s December quarter GDP when the national accounts are released early next month. As noted earlier, monthly sales values fell by 0.4% in the month of December to be up just 2.8% over the year: In quarterly real chain volume terms,
Via CBA: 2018 ended on a very weak note for the retail sector. We expected a disappointing December based on our internal data (CBA (f) ‑0.5%). So the 0.4% fall that the ABS reported today doesn’t surprise us. The market consensus, however, was centred on a flat outcome so it was a solid miss on
By Leith van Onselen The Federal Chamber of Automotive Industries (FCAI) has released its new car sales figures for January, which revealed a heavy 7.4% decline in overall sales relative to January 2018, driven by a 12.0% decline in passenger motor vehicles (PMVs): Tony Weber, CEO of the Federal Chamber of Automotive Industries (FCAI) attributed
By Leith van Onselen The Australian Bureau of Statistics (ABS) today released trade data for the month of December, with Australia’s trade surplus jumping to $3.7 billion in December from $2,3 billion in November: The result smashed expectations of a $2.2 billion surplus. Below is the time series chart, which shows that it was the
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released retail sales figures for the month of December, which recorded a 0.4% fall in retail sales over the month in seasonally-adjusted terms, with annual sales growth falling to 2.8%: In trend terms, annual retail sales growth fell to 3.2%. The below chart maps
By Leith van Onselen Australian governments’ pretend concern over Australia’s universally weak wages growth (see above chart) has been exposed again, with the NSW Government explicitly mandating that the winning bidder for its Roads and Maritime Services IT contract – Indian outsourcer Wipro – employ 30% of its workers from India to keep costs low. From
From the AIG: Business-oriented services sectors: The only business-oriented sector of the Australian PSI® to expand in January was property & business services, which improved slightly from December. Finance & insurance and transport & storage experienced slightly negative conditions. The wholesale trade sector reported firmly negative conditions, with particularly weak sales, new orders and employment
Via Damien Boey at Credit Suisse: We have updated our proprietary activity tracker from our recent article “Positioning for RBA forecast downgrades” dated 30 January 2019. Note that the update is merely preliminary, as we do not yet have all the relevant components for a February reading. But we do have most of them: From
By Leith van Onselen The latest Roy Morgan Research (RMR) unemployment estimate for January fell a seasonal 0.5% to 9.2%, but was up 0.1% over the year: Below are the key points from the release: The workforce, which comprises employed Australians and those who are unemployed and looking for work, is now 13,650,000, up 195,000
By Leith van Onselen It is considered unlikely that any free trade deal between Australia and Indonesia will be signed before the federal election. Elections in Indonesia are due in April, while there is still unhappiness in Indonesia over Prime Minister Scott Morrison’s 2018 suggestion that Australia might re-locate its embassy in Israel to Jerusalem.
Another lunatic RBA data point as ANZ job ads roll over -1.7% in January and December is revised down to -0.7% with job ads now falling -3.7% year on year: Goodbye Aussie economy.
Via the Melbourne Institute comes another new year shocker with headline inflation at -0.1% month on month and year on year slumping to 1.5% from 1.9%: Trimmed mean tumbled from 1.8% to 1.4%. Do we need to paint the RBA a picture?
BLD is today’s housing economy domino: Always blame the weather. Building products have been slain as the Botox Boom peaks and drops:
Ross Gittins is a survivor but that takes a lily liver: Two or three years ago, I was happy to entertain the view still publicly espoused by the Reserve Bank (and still happily hidden behind by Morrison) that the wage problem was simply cyclical…Sorry, that possible explanation gets harder to believe as each quarter passes
By Leith van Onselen The Australian Chamber of Commerce & Industry (ACCI) has warned that wage exploitation is a systemic problem. The ACCI has used its pre-Budget submission to urge the federal government to provide the Fair Work Ombudsman (FWO) with extra funding to combat wage underpayment, arguing that it needs an additional 50 workplace
By Leith van Onselen If you want a textbook example of why Australia’s ‘skilled’ visa program is a giant fraud, look no further than the special pleading coming from Telstra CEO, Andy Penn, who has demanded the government leave the gates wide open for companies to employ foreign workers. From News.com.au: Mr Penn told an audience
Via The Australian: China has restricted imports of Australian coking coal at up to a dozen ports in the northeast in a move that may hamper the nation’s biggest export market amid high prices for the raw commodity. Ports in northeast China have been verbally informed that shipments of Australian coal face lengthy custom delays,
