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.


Credit Suisse growth tracker crashes into deep recession

Oh yes, via Damien Boey at Credit Suisse: Over the past few days, we have witnessed some rather sharp deterioration in the leading indicators of Australian growth: Westpac consumer confidence fell sharply in early October to 92.8 from 98.2. For reference, readings below 100 have historically been associated with contraction. Westpac home-buying sentiment fell in


ABC: Melbourne’s outer migrant suburbs a “modern slum nightmare”

The ABC has published an interesting profile on the outer-Western Melbourne suburb of Tarneit, which is fast morphing into a modern migrant slum nightmare: When the Bahadur family moved into their new home in Melbourne’s booming outer west four months ago, they dreamed of suburban bliss. But it turned out to be a nightmare. “We


Power grid descends into chaos as gas cartel laughs

Via the AFR today: The chair of the Energy Security Board Dr Kerry Schott says the rapid take-up of household rooftop solar panels in Australian cities is causing energy security problems for energy distribution companies. …”The so-called duck curve is really causing security issues for the distribution networks,” she said.Dr Schott said Australia’s power grid


Australia’s economy is bred for stupidity

Yesterday we reported how the Harvard Kennedy School’s Center for International Development has ranked the Australian economy amongst the least sophisticated, with Harvard labelling Australia “rich, dumb and getting dumber”. Today, a variety of mainstream Australian economists have addressed Harvard’s rankings, with some dismissing the findings and others showing concern. From The AFR: “Complexity of


Trashed visa system fuels human trafficking, exploitation and slavery

Department of Home Affairs officials have confirmed that around 95,000 asylum seekers have arrived in Australia by plane over the past five years, which Labor claims is fuelling “exploitation and slavery”: The figures were disclosed in answers to Questions on Notice from Labor’s spokesperson for Home Affairs and Immigration Kristina Keneally. “There’s nothing wrong with


International students conned by deceitful migration agents

Last week, a group of academics released a report, entitled Temporary Graduatification, which sounded the alarm over the exposure of international student graduates to unscrupulous migration agents: … many international students who want to stay on and apply for the 485 [Graduate] visa are vulnerable to being exploited by a growing number of ‘dodgy’ agents


NAB business survey remains weak

Via NAB: Business conditions recorded a sixth consecutive below-average month, pointing to ongoing weakness in the business sector. In the month, conditions edged up 1pt and confidence edged lower. While both conditions and confidence remain below average levels +6 index points – the broadbased trend decline since mid-2018 appears to have slowed. In the month,


ANZ job ads get worse more slowly

Something of a slowing in the ANZ job ads negative trend: After falling 2.6% m/m in August, ANZ Job Ads recorded a small gain of 0.3% in September. This saw the annual decline fall to -10.4%. In trend terms, job ads fell -0.2% m/m and -10.9% y/y. ANZ Senior Economist, Catherine Birch, commented: Job ads


Melbourne’s dystopian migrant-stuffed future revealed

The latest medium population projections from the ABS has Melbourne’s population more than doubling to 10.2 million by 2066, with the city’s population projected to increase by 109,000 people annually: As you can see above, 89% of Melbourne’s population increase is projected to come from net overseas migration (NOM), meaning that without positive migration, Melbourne’s


The dumbening of Australia

The Harvard Kennedy School’s Center for International Development has developed an Atlas of Economic Complexity, with Australia being ranked as having one of the least complex economies. The Atlas measures the diversity and sophistication of national exports, with almost all of Australia’s exports not requiring a degree to make. The Center for International Development contends


Australian Treasury: compulsory superannuation increase will lower wage growth

Treasury analysis, obtained under Freedom of Information, claims that raising Australia’s superannuation guarantee (‘compulsory superannuation) to 12% would lower wage growth and would make the gender retirement savings imbalance even worse: Though compulsory SG contributions are paid for by employers, wage settings generally takes into account all labour costs. As such, it is widely accepted


Don’t privatise Australia’s visa system

Yesterday, we reported how migration groups have attacked the Morrison Government’s plan to privatise Australia’s visa processing system, claiming that will create “major systemic risks” and is a “disaster in the making”. Today, former Department of Immigration deputy secretary, Abul Rizvi, has again warned that privatising Australia’s visa system opens Australia’s to “immense risks” and is


Banks’ offshore bond issuance hits all-time high

The Australian Bureau of Statistics (ABS) recently released its National Financial Accounts for the June quarter, which revealed a 0.5% quarterly rise in Australian banks’ gross external liabilities (offshore borrowings), but a 0.6% decrease over the year. Bonds (+$8 billion), Loans (+$7 billion) and Other (+$5 billion) drove the quarterly rise in offshore borrowings by


Drought to intensify

Via QLDCL: THE POSITIVE Indian Ocean Dipole (IOD) event, which is a key factor in current dry conditions across Australia, has strengthened to be the most intense event of its kind in almost 20 years. Earlier in the week the Bureau of Meteorology (BOM) reported that the IOD positive had hit a value of +1.76


Coalition mortgages Australia’s economic future

Via Independent Australia: IN A RECENT SURVEY conducted by the Australian Financial Review, every single economist who participated had the same message for the Morrison Government: the Reserve Bank should not have to rescue the economy on its own. However, despite the mounting evidence of domestic economic slowdown and the growing risk of a potential


Transurban West Gate private tax skyrockets

In late 2017, the Victorian Labor Government completed a shady $6.7 billion deal with Transurban to build the West Gate Tunnel Project, which will see Transurban contribute $4.4 billion towards the cost in exchange motorists paying $15 billion in additional tolls on CityLink until 2045. Former Premier Jeff Kennett described the deal as “absurd” and


Coalition launches Population Propaganda Centre

As Australia’s population swells by around 1,000 people a day, and is projected to balloon to around 43 million people over the next half-century: The Morrison Government has launched a new Population Centre to produce more accurate growth forecasts and better planning: Launching the $23.4 million body in Canberra on Friday, Population Minister Alan Tudge


Recessionberg could take down the Government

The rictus Treasurer is copping a lot of flack, via The Australian: Former Reserve Bank governor Ian Macfarlane has warned that the central bank has reached the limits of its ability to boost the economy through interest rate cuts and further reductions will have “very little power to do anything useful’’. After the RBA cut


Morrison Government’s visa privatisation creates “major systemic risks”

Immigration lobby groups are the latest to lash the Morrison Government’s plan to privatise Australia’s visa system, claiming it will create “major systemic risks” and is a “disaster in the making”: In the latest set of submissions delivered to the Senate committee looking into “the impact of changes to service delivery models on the administration


Indian international students blacklisted from Australian universities

This time last week, we reported how international students from India, Nepal and Pakistan had been deemed “high-risk” by Australia, which means that students from these nations would now face deeper scrutiny and have more difficulty obtaining visas from the Department of Home Affairs. In particular, student applicants from these nations are now required to


UK seeks to copy Australia’s fake skilled visa system

The United Kingdom’s Conservative Party is seeking to emulate Australia’s points-based migration system, which it claims is the best in the world and would restore integrity to the United Kingdom’s borders: Addressing supporters at the Conservative party conference in Manchester, British Home Secretary Priti Patel said the government is working hard to make it happen.


Another celebrity chef falls to wage theft scandal

Via Domain: A detailed external audit shows that the high-end restaurant business that runs Chin Chin in Melbourne and Sydney underpaid staff by $340,000 in a single year, with one-fifth of the company’s workforce affected. The audit by accounting firm Stannards measured actual staff wages for the 2017-18 financial year against the award at The


Australian retail sales remain in the gutter

The Australian Bureau of Statistics (ABS) has released retail sales figures for the month of July, which recorded a 0.4% rise in retail sales over the month in seasonally-adjusted terms, with annual sales growth rebounding to just 2.6%: In trend terms, annual retail sales growth slowed to 2.3%. The below chart maps out nominal seasonally-adjusted


LVO demolishes RBA’s wage lies on Radio 2GB

This morning I was interviewed by Radio 2GB’s Luke Grant, whereby I demolished the RBA’s claim that Australia’s weak wage growth has been caused by the rise of older Australians in the workforce, which has supposedly raised labour supply relative to demand. This interview was based upon yesterday’s article, entitled “RBA blames oldies for crushing


Collapse in new car sales proof Aussie consumers are sick

The Federal Chamber of Automotive Industries (FCAI) has released its new car sales figures for September, which revealed that new car sales have declined for 18 consecutive months, down 6.9% year-on-year and by 9.8% from the March 2018 peak: FCAI has blamed “restrictive lending conditions” for the slump in new car sales: According to Tony