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.


More dud trade deals to offset ‘unfair’ China

The trade spat with China is being used by the Coalition as an excuse to launch a bunch of dud ‘free trade’ agreements (FTAs): Australia will pursue trade agreements with Israel, Switzerland, Norway, Middle East and Latin American nations next year to open up new markets amid China’s “unfair, unjust and unwarranted” targeting of exporters…


It’s official: immigration has turned negative

The Federal Budget forecast net overseas migration (NOM) to turn negative for the first time since the Second World War, recording declines of -71,600 in 2020-21 and -21,600 in 2021-22, before recovering to 95,900 in 2022-23 and 201,100 in 2023-24: The ABS’ quarterly population data provided the first evidence of this immigration collapse with NOM


Collapsed immigration supporting Aussie labour market

Following Thursday’s ABS labour market release, CBA’s head of Australian economics, Gareth Aird, noted that border closures are helping to support Australia’s labour market recovery: In recent years the Australian economy has needed to generate growth in employment of around 18ka month to keep the unemployment rate from rising. A decent rate of jobs growth


Nobody responsible for Victoria’s hotel quarantine debacle

As expected, the Final Report of Victoria’s Hotel Quarantine Inquiry has failed to identify who was responsible for making the decision to contract-out enforcement to untrained private security. Below are key extracts from the Executive Summary: Victoria’s Hotel Quarantine Program ran for three months from 29 March–30 June 2020. In this time, a total of 21,821


High-income tax cuts are ‘trickle-down’ nonsense

International research suggests that the next stage of the federal government’s tax reform agenda may increase income inequality and do little to boost productivity. From mid-2024, the government proposes to introduce a flat income tax rate of 30 per cent for people earning between $45,000 and $200,000. Researchers Enrico Rubolino and Daniel Waldenstrom examined previous


Sydney’s COVID infections surge to 87

NSW Health has reported another 15 COVID-19 cases overnight linked to the Avalon cluster: All 15 locally acquired cases are linked to the Avalon cluster. Investigations continue into the source of this cluster, which now numbers 83. — NSW Health (@NSWHealth) December 21, 2020 There are now 83 cases linked to this cluster, with NSW’s


You cannot be serious: abattoir workers handed skilled visas

As we know, Australia’s entire ‘skilled’ visa system is a sham that is actually delivering the nation low paid and underutilised workers. The evidence is standing in plain sight in the Department of Home Affairs’ Continuous Survey of Migrants: As shown above, migrants have significantly worse labour market outcomes than the general population. Specifically: The


Report: Victoria’s people servicing strategy delivers dumb growth

Regular readers will know that I am a harsh sceptic of Victoria’s economic model, penning dozens of articles over the years criticising the state’s over-dependence on mass immigration and population growth to drive the economy, rather than productivity and export driven growth (read my most recent report here). Bob Birrell and Ernest Healy from the


Sydney COVID outbreak ridicules call to bring back international students

Two week’s sure is a long time in the world of COVID. Less than a fortnight ago, NSW Premier Gladys Berejiklian lodged a plan with the federal government to use one third of the state’s 3,000 hotel quarantine places to import international students. The education lobby quickly jumped on the announcement, once again demanding Australia


2020 post-Christmas sales to bounce

Roy Morgan Research projects strong post-Christmas sales across Australia, with the exception of Victoria: Roy Morgan’s annual post-Christmas retail sales forecasts conducted in conjunction with the Australian Retailers Association (ARA) project Australians are set to spend $19.46 billion across retail stores during the post-Christmas trading period, an increase of 3.9% from a year ago. The


Australia now a nation of optimists

From Roy Morgan Research: Of all Australians 59% now think 2021 will be ‘better’ than 2020 – the highest positive view on the year ahead since 2009 following the Global Financial Crisis, a special Roy Morgan web survey conducted in November finds. A further 17% say 2021 will be ‘the same’, an all-time record low


Calls for Royal Commission into corrupt universities

Academics from three WA universities are calling for a royal commission into higher education. They argue that an obsession with university rankings and publishing research has overtaken universities’ fundamental mission: to deliver quality education to Australian students. From The SMH: West Australian universities are on a dangerous path, according to WA academics who say the


Youth unemployment still rising

Yesterday’s ABS labour force release for November revealed that Australia’s youth unemployment rate – i.e. for those aged 15 to 24 years old – continued to rise despite solid growth in jobs. The headline youth unemployment rate rose 0.1% to 15.6% and remains three times higher than the rest of the labour market (5.2%): However,


Sydney’s COVID outbreak swells

It’s shaping up to be a bad Christmas for Sydney residents, especially those on the Northern Beaches, with the city’s coronavirus cluster multiplying. After having only one active case on Tuesday, a cluster was discovered on Wednesday that quickly grew from three to five, and last night numbered 17. The Northern Beaches region of Sydney


Hospitality industry suffering shortage of migrant slaves

A new survey by the Australian Bureau of Statistics suggests that many businesses are finding it hard to attract skilled workers, with hospitality supposedly experiencing the biggest worker shortage: It’s hard to take this type of survey serious when the accommodation and food sector has experienced the biggest COVID-19 job and wage losses: The hospitality


Aussie jobs bounced back hard in November

The Australian Bureau of Statistics (ABS) today released its labour force report for November, which registered a 0.2% fall in the official unemployment rate to 6.8% of a 0.7% increase in jobs: Full-time jobs surged by 84,200 and part-time employment rose by 5,800: The participation rate rose another 0.32% to 66.10%: Total employment has rebounded


New COVID outbreak hits Sydney

Australia was so close to fully eliminating local transmission of COVID-19. As of Tuesday, we had only one locally acquired case nationally in New South Wales. Then yesterday, New South Wales recorded its first locally-acquired cases of COVID-19 since 3 December. Health authorities have commenced contract-tracing and genome sequencing after a man in his 70s


Working from home will permanently shape our cities

Infrastructure Australia has released a new report, entitled Infrastructure beyond COVID-19, which contends that working from home (WFM) is here to stay and will permanently shape our cities as well as prompt greater migration to regional areas: Widespread ‘working from home’ reduced demand by workers to live in close proximity to their workplace, with more


Josh Frydenberg neuters ASIC

Last month, Treasurer Josh Frydenberg declared war on corporate regulator ASIC over its enforcement of responsible lending rules, stating that the regulator needs to be overhauled so it conforms to the will of parliament: “They must pursue their mandates in a manner that is consistent with the will of the parliament,” he said. “There need


SME payroll devastation deepens

Westpac on the ABS data: The Victorian lockdown was lifted on November 8 so it’s not surprising that the gains in payrolls was led by a strong recovery Victoria. WA still stands out as the strongest state why NSW is starting to lift again. The lift in Victoria was supported by robust gains in NSW


Leading index to the moon!

Via Westpac: This is the strongest growth rate in the sixty year history of the measure. That said, the gains still largely reflect the severity of the preceding contraction which saw the Index growth rate drop to an extreme low of –5.5% in April. In level terms, the Index has now recouped 80% of that


Boom and bust for retail this Christmas

Below are retail sector forecasts from Deloitte’s latest Weekly economic briefing: Deloitte Access Economics’ latest Retail Forecasts shows that retail spending has weathered the COVID-19 storm remarkably well to date. With restrictions easing and a measure of pent up demand unleashed, retailers experienced a 6.5% surge in spending volumes over the September quarter. That surge means that overall


Used-car boom about to go bust?

Via Moody’s: Used-Vehicle Price Growth Hits the Brakes but Doesn’t Come to a Complete Stop Australian used-vehicle prices reached yet another all-time high in November. According to the Datium Insights-Moody’s Analytics Price Index, wholesale used-vehicle prices are 33% above where they were at this point last year. Price growth has slowed considerably since the historic


Deloitte: Brace for a tidal wave of retail collapses

Deloitte Access Economics partner David Rumbens says the Christmas trading period is critical for retailers in any year, but the COVID-19 pandemic means it will be more so in 2020. Rumbens notes that coronavirus measures such as government stimulus payments have resulted in fewer retailers going into administration compared with 2019. However, he cautions that


How long will it take for vaccines to kill the virus?

Via Goldman: This note expands our monthly forecasting vaccination model by including the major emerging markets and the ten leading global vaccine candidates. Global vaccine supply is likely to become plentiful. Achieving the top-10developer production targets would deliver enough doses to vaccinate 85% of the world’s population in 2021. Although DMs currently hold the largest