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 With most recent opinion polls showing the majority of Australians want immigration to be lowered, including: Australian Population Research Institute: 54% want lower immigration; Newspoll: 56% want lower immigration; Essential: 54% believe Australia’s population is growing too fast and 64% believe immigration is too high; Lowy: 54% of people think the
By Leith van Onselen Just two months after the Grattan Institute released propaganda claiming “Australia’s urban commuters have little to fear from population growth”, that “migration has not brought cities to a standstill”, and that the impact of population growth is “benign”, the truth has been revealed yet again, with the Global Urban Mobility Index showing
S&P deluded: Key takeaways − A weakening in government support remains a possibility, but we see a recent regulatory proposal on increasing banks’ loss-absorbing capacity as an indication that support is likely to remain high. − Economic imbalances remain elevated. However, low credit growth and small falls in house prices in the past year suggest
From Westpac’s Bill Evans: This result will come as a disappointment to the Reserve Bank. Note that the forecast for GDP growth in 2018 for which appeared in the November Statement on Monetary Policy was 3.5%. With the first three quarters of the year totalling 2.2% the December quarter would have to print growth of
By Leith van Onselen The Australian Bureau of Statistics (ABS) today released the national accounts for the September quarter, which registered soft 0.3% growth in real GDP over the quarter and a 2.8% rise over the year. On a per capita basis, real GDP fell by 0.1% over the quarter but was up by 1.8%
The ABS is out with Q3 GDP and the news is weakness: Consumption weak at 0.3% the key. Housing bust! Previous boom revised down too. Bonds boom, AUD smashed. Much more to come.
A few days ago, LVO penned a piece exposing the extraordinary rent-seeking economy of NSW: One of the biggest structural changes to have occurred to the Australian economy over the past 35-years has been the explosive growth in the FIRE economy – Finance, Insurance and Rental, Hiring & Real Estate Services – which has roughly doubled
By Leith van Onselen Former Fair Work Ombudsman (FWO), Natalie James, has admitted that wages theft is rife across the Australian economy, especially in migrant-heavy sectors. From The AFR: …by the end of her five-year term as the Fair Work Ombudsman she had come to the conclusion underpayments were not only part of a culture in
Via AIG: Business-oriented services sectors: The Australian PSI® indicated expansion in only two of the five business-oriented sectors in November (trend). Business & property services reported good demand from infrastructure construction projects and communications services also described positive conditions. Businesses in the wholesale trade sector reported contracting activity after being stable the previous month. Finance
It’s very, very simple. Australia now has an economy that serves a very few elites and rorts everybody else. This is most obvious in income: Corrupted by politics or blinded by economic ideology, the doyens in our institutions simply don’t get it. They are focused and happy with GDP as the only measure of progress
By Leith van Onselen Balance of payments for the September quarter is out and Australia’s external position has improved: The current account deficit (CAD) improved by $1.4 billion in Q3 to $10.7 billion: Over the year, the CAD improved by $11.8 billion to $48.9 billion: Assuming Australia’s GDP grows by 0.6% as expected in the
By Leith van Onselen Within today’s dump of balance of payments data that feeds into tomorrow’s September quarter national accounts release was the important news that Australia’s terms-of-trade rose by 0.8% in seasonally adjusted terms and by 0.4% in trends terms: Over the year, the terms-of-trade rose by 2.7% in seasonally adjusted terms and by
More GDP inputs, this time better: net exports to add 0.4% public consumption and investment to add 0.3% So, at this stage it looks like: private investment weak (probably negative); public investment 0.3%; household consumption (perhaps weak based on retail volumes and imports); net exports 0.4%, and inventories -0.3%. Consumption the key. As always, GDP
By Leith van Onselen Stephen Koukoulas (aka ‘The Kouk’) is one of the few mainstream economists in Australia with enough integrity to admit that Australia’s immigration program is overcooked. Back in April, The Kouk argued that “simple economics” says Australia should cut its immigration intake: There are a number of vital areas of societal well-being
Via Deutsche Bank’s Matthew Wilson, my new hero: The Australian major banks appear cheap on most investment metrics. However, for the first time in a long time, they confront a raft of real challenges and uncertainty. The cosy oligopoly that historically generated healthy returns and essentially uninterrupted growth predominantly from retail banking (deposits and mortgages),
By Leith van Onselen While almost all recent opinion polls show the majority of Australians want immigration to be lowered, including: Australian Population Research Institute: 54% want lower immigration; Newspoll: 56% want lower immigration; Essential: 54% believe Australia’s population is growing too fast and 64% believe immigration is too high; Lowy: 54% of people think
Doesn’t make a whole lot of sense does it? Over the past six months as China has slowed, iron ore has boomed. Every time the trade war intensified, it was bid up on hopes of more Chinese stimulus. Yet yesterday, as the trade war cooled off, iron ore boomed again. What is it, a magic pudding
By Leith van Onselen The ABS has released Estimates of Industry Multifactor Productivity for 2017-18, which reveals that multi-factor productivity (MFP) – the driver of living standards – has slowed to five year lows: Multifactor productivity (MFP) for the Australian market sector rose 0.5 per cent in 2017-18, which was the lowest MFP growth in
Via Westpac: Details Company profits, +1.9% vs forecast market 2.8% & Westpac 1.3% Company profits adjusted: 1.2%, in line with Westpac forecast 1.3% Wage incomes (i.e. employment x wages): 0.9%, in line with our expectations Inventories: flat, a downside surprise vs forecast (market 0.4% & Westpac 0.5%) Inventories contribution: -0.3ppts vs forecast Westpac -0.1ppts Comment
By Leith van Onselen Australia’s universities have been warned to take action to mitigate the risk of a decline in Chinese students by the higher education program director at the Grattan Institute, Andrew Norton. This warning comes after the University of Illinois, where 20% of student students are Chinese, has paid nearly $US500,000 to insure
By Leith van Onselen One of the biggest structural changes to have occurred to the Australian economy over the past 35-years has been the explosive growth in the FIRE economy – Finance, Insurance and Rental, Hiring & Real Estate Services – which has roughly doubled its share of the national economy: In short, since financial markets
Via ANZ: On a seasonally adjusted basis, ANZ Australian Job Advertisements fell 0.3% in November reversing the prior month’s gain. On an annual basis, growth slowed to 2.3% in November (vs 3.7% in October). This is the slowest annual growth in ANZ Australian job ads since May 2015. In trend terms, job ads
Business Indicators have delivered another GDP nasty in inventories: SEPTEMBER KEY FIGURES Jun Qtr 18 to Sep Qtr 18 Sep Qtr 17 to Sep Qtr 18 % % Sales of goods and services (Chain volume measures) Manufacturing Trend -0.5 0.4 Seasonally Adjusted -0.9 -0.9 Wholesale trade Trend 0.0 -0.4 Seasonally Adjusted 0.9 -0.3 Inventories (Chain
As we know, on Friday LVO published some dynamite details of new, very high powered academic research into the relationship between Australia’s historically weak wages performance and mass immigration. Below are key excepts from Chapter 13 entitled Temporary migrant workers (TMWs), underpayment and predatory business models, written by Iain Campbell: This chapter argues that the expansion of temporary
Via the AIG: Manufacturing sectors: Five of the eight sectors in the Australian PMI® expanded in November and three were broadly stable (trend). Growth was led by the printing & recorded media, food & beverages and non-metallic minerals (mainly building and construction-related products) sectors. The large metals and machinery & equipment sectors reported buoyant conditions
By Leith van Onselen Over the weekend, Fiona Nield from the Housing Industry Association (HIA) penned an article warning that the Victorian economy is dangerously exposed to a housing correction. From The Age: The growth in construction activity over recent years has seen strong growth in the state’s construction workforce. More than one in 10
By Leith van Onselen With Australia’s permanent migration program already an insane 180,000 in 2017-18 – more than double the level at the turn of the century: And net overseas migration (NOM) running at more than triple the historical average, which is projected to continue for decades: Labor has pledged to raise immigration even further
By Leith van Onselen The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of October 2018: A chart showing the long-run breakdown in the components is provided below: Personal credit growth (-0.2% MoM; -0.5% QoQ; -1.6% YoY) is still in the gutter, whereas business credit growth (0.6%
By Leith van Onselen Yesterday, a group of labour academics released a book, entitled The Wages Crisis in Australia, which bemoans Australia’s anaemic wages growth and offers policy prescriptions. Locked away in chapters 13 and 14 are incendiary analyses on the great Australian migrant wage rort, which is unambiguously lowering employment standards and undercutting local
By Leith van Onselen The ABS yesterday released its annual Characteristics of Employment report, which revealed that median weekly earnings grew by a strong 5.4% in the year to August 2018, with full-time earnings growing by 4.7%: As at August 2018, median weekly earnings were $1,066 ($55,432 per year), whereas median full-time weekly earnings were
