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.


Construction PMI fades some more

The AIG construction PMI is out and growth slowed again in October to 53.2, still solidly expansionary but well off the boom highs above 60 points: ▪ The national construction industry expanded for a ninth consecutive month in October with a slight easing in growth momentum from September. ▪ The Australian Industry Group/Housing Industry Association


Population ponzi to gobble up cities’ water supplies

By Leith van Onselen Back in July, it was reported that Melbourne’s water storages could dry-up as the combination of climate change meets rapid immigration-fuelled population growth: Melbourne could begin to experience chronic water shortages within about a decade, even if the desalination plant is cranked up to its full capacity, as climate change and


Housing to receive bigger focus in new CPI

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released new weights for the consumer price index (CPI), effective from the December quarter, which will give greater emphasis to housing-related costs. Below is the media release: The Australian Bureau of Statistics (ABS) has today released new Consumer Price Index (CPI) weights that


Gig economy hits brick wall in oBikes

Herald Sun reported recently: FOR A CITY that has embraced deconstructed avocado smash, food trucks for dogs and every other wanky inner-city trend, Melbourne sure is narrow-minded when it comes to oBikes. The controversial bicycle-sharing service hoped to encourage more people within Melbourne and Sydney to choose riding over public transport or driving. Costing just


Roy Morgan unemployment rises to 9.5% in October

By Leith van Onselen The latest Roy Morgan Research (RMR) unemployment estimate for October registered a 0.4% increase in the unemployment rate over the month and the key figure is a 0.3% increase over the year, with underemployment also rising significantly: Below are the key points from the release: 2.334 million Australians (18% of the


Revolt over Sydney population ponzi to decide state election

By Leith van Onselen The growing backlash over Sydney’s rapid immigration-driven population growth is now shaping up as the key issue that will decide the next state election. From The SMH: Confronted with an increasingly cynical electorate and one which is fed up with congestion, the Berejiklian government, having declared housing affordability among its top


Weak retail sales to drag down Q3 GDP

By Leith van Onselen Friday’s retail sales figures should detract from Australia’s September quarter GDP when the national accounts are released early next month. As noted on Friday, monthly sales values registered no change in seasonally adjusted terms and just 1.4% growth over the year – equivalent to GFC lows – with the trend also


Services PMI fades away

Via AIG: • The Australian Industry Group Australian Performance of Services Index (Australian PSI®) fell 0.7 points to 51.4 in October (seasonally adjusted), marking a marginal slowing in growth from September. Australian PSI® results above 50 points indicate expansion, with higher numbers indicating stronger rates of growth. • Four of the five activity sub-indexes in


Australia’s trade surplus jumped in September

By Leith van Onselen The Australian Bureau of Statistics (ABS) today released trade data for the month of September, with Australia’s trade surplus rising to $1,745 million from $873 million (revised) in August. In seasonally adjusted terms, exports rose $924 million (3%) to $32,961 million in September, whereas imports rose $52 million (0%) to $31,216


Priced out at home and abroad: ice cream edition

Via the ABC: Australians are being urged to boycott some of their favourite ice creams after a breakdown in negotiations between Streets workers and the company’s owner Unilever. Unilever has applied to Fair Work Australia to terminate the current enterprise agreement, which the unions say could leave 140 workers at the Streets factory in Minto,


RBA commodity price index falls again in October

By Leith van Onselen The RBA has released its commodity price index for October, which registered a 2.4% fall SDR (currency weighted) terms – the key determinant of the terms-of-trade – as well as a 0.9% decrease in Australian dollar terms: Preliminary estimates for October indicate that the index declined by 2.4 per cent (on


Fair Work slices Domino’s labour gouge

Finally some better news on the booming trade in Australian coolies, via the AFR: The Fair Work Commission has axed Domino’s Pizza’s long expired agreements that paid thousands of workers significantly below minimum rates, leaving the franchise facing tens of million of dollars in higher labour costs. The ruling, which introduces penalty rates to more


$1 million a month skimmed from illegal migrant slaves

By Leith van Onselen A new month has arrived and with it there’s a new report on Australia’s illegal migrant slave labour trade. From The ABC: Three Tongan workers have died and others are being forced to live and work gruelling hours in pitiful conditions on a Federal Government-backed program, a parliamentary inquiry has heard.


PMI slumps as car industry drives into sea

From the AIG:   ▪ The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI® ) fell 3.1 points to 51.1 points in October (seasonally adjusted), indicating slower growth after a run of stronger monthly expansions over the previous six months. Results above 50 points indicate expansion with higher results indicating a stronger expansion.


Myer warns again, again, again

Via AFR: Myer chief executive Richard Umbers has slashed sales growth and return targets under his New Myer strategy after admitting that the retail environment was changing faster than expected. Under new targets unveiled at a strategy update in Melbourne on Wednesday, Myer is now aiming to grow sales per square metre or productivity by


Population ponziteers fight to hold back Sydney immigration angst

By Leith van Onselen 7 News ran an excellent segment (above) on the growing backlash over Sydney’s rapid population growth. The segment touches on some of the major issues, including over-development (e.g. the proliferation of high-rise apartments), and pins the blame squarely on the federal government’s 200,000 strong mass immigration program. As usual, representatives from


Our once esteemed universities are now a degree factory nightmare

By Leith van Onselen We don’t agree with The Menzies Research Centre’s Nick Cater much but today he makes sense, joining the conga-line of critics bashing Australia’s demand-driven university system, which has crashed education standards, devalued the value of a degree, flooded the labour market (resulting in poor employment outcomes), and cost the Budget (and