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.

17

Australian household financial confidence collapses

Digital Finance Analytics has released its latest Household Financial Confidence Index, which has collapsed to a record low: DFA is releasing the latest in our 52,000 household survey series examining household financial confidence. The score to mid January is an all-time low of 81.2, well below the neutral setting and the previous low back in

3

Dan’s West Gate Tunnel hit with another scandal

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

45

Former Labor MP: Temporary visa flood is smashing wages

Former federal Labor MP, Craig Emerson, has penned an article in The AFR warning that the relentless rise of migrants workers on temporary visas is crushing Australian wage growth, alongside the expansion of low productivity personal services industries, like food delivery. According to Emerson, there is minimal sophisticated capital equipment used in these services sectors,

17

Pessimism engulfs Australians

The traditional Gallup International End of Year survey conducted in countries all over the world shows Australians are amongst the least optimistic about 2020 of anyone: As shown above, only 12% of Australians are optimistic about 2020, versus 40% that are pessimistic. In fact, the only OECD nation that is more net pessimistic than Australia

5

Free trade agreements are a Trojan horse

The Australia Institute’s (TAI) chief economist, Richard Denniss, has lambasted the Coalition’s unwavering push to sign as many ‘free trade agreements’ (FTAs) as possible, claiming that undermine Australia’s sovereignty: While Morrison’s new talking points suggest there should be no higher power than the Australian people, his government is in the middle of negotiating free trade

10

Congestion costs to soar as Australia’s population balloons

The AFR’s Infrastructure reporter, Jenny Wiggins, penned a detailed report over the weekend on how Australia’s cities are facing declining living standards and must shift from being car-based towards mass transit: …as horrific bushfires rage around the country, filling cities with smoke, and the nation’s population of 25.5 million keeps rising – the Australian Bureau

21

Black Friday drives retail sales to the moon

The ABS has released retail sales figures for the month of November, which recorded 0.9% growth in the value of retail sales over the month in seasonally-adjusted terms, with annual sales growth lifting to 3.2%: In trend terms, annual retail sales growth rose to 2.9%. According to the ABS: “We have seen strong growth in

13

It’s time to dump the GDP obsession

Ross Gittins has joined the growing band of economists questioning the merits of  GDP as the key economic measure of progress: GDP is the most closely watched bottom line of the “national accounts” for the Australian economy… The critics are right to point out the many respects in which GDP falls short as a measure

14

Tourism industry king hit by bushfires

Australia’s tourism industry is Australia’s fifth biggest export, according to the Department of Foreign Affairs and Trade: Export revenues have also roughly doubled since 2013: However, there are widespread concerns that the bushfire crisis will stop international tourists from visiting Australia, smashing the industry alongside export revenue. Overnight, the US Department of State urged American

18

Retail recession drives torrent of store closures

The retail recession afflicting Australia has been well documented. Retail sales volumes registered their first annual decline since the early-1990s recession in the September quarter: Whereas household consumption spending growth slowed to just 1.2% in the year to September – the lowest level since the Global Financial Crisis: Now the retail closures are piling up,

41

Mortgage stress rockets to record high

Mortgage rates may have cratered, but mortgage stress has lifted to another record high with 1.1 million households now under stress, comprising 32.7% of borrowing households. From Martin North: We are releasing the results of our rolling household surveys, which were completed before the latest round of bushfires started raging. Nevertheless, the results are a

13

Another Big Australia hypocrite emerges

For years, City of Melbourne’s planning chairman and principal fellow at Melbourne University, Nick Reece, has vigorously defended the mass immigration ‘Big Australia’ policy. For example, he stated the following propaganda in 2017 on his Politics HQ program: “Countries that don’t have strong immigration programs often get themselves into trouble. And probably the best example

2

Australia’s trade surplus lifts

The Australian Bureau of Statistics (ABS) today released trade data for the month of November, with Australia’s trade surplus rising to $5.8 billion from $4.1 billion in October: The next chart shows that Australia’s trade surplus is running at strong levels: In November, exports (credits) fell and imports (debits) fell: In seasonally adjusted terms, goods

3

Little joy in latest job vacancies data

After yesterday’s ABS job vacancies data for the November quarter revealed a slight uptick: CommSec’s perma-bull chief economist, Craig James, was quick to put lipstick on a pig: Commsec’s Craig James said: “There are jobs to be had, especially, it seems in the public sector. And the surge in online sales has boosted jobs in

4

ACCC head: Asset privatisations “increase tax by stealth”

Over recent years, Australian Competition and Consumer Commission (ACCC) head, Rod Sims, has issued a spate of warnings about, and voiced opposition to, the proliferation of privatisations being undertaken across the country, claiming that it is gouging consumers. Now Sims has accused state and federal governments of using privatisation to increase tax by stealth by

67

“Demand management” won’t solve Sydney’s water crisis

Sydney’s water storages continue to plunge at an alarming rate that makes the Millennium Drought look like child’s play: This has prompted the Berejiklian Government to fast-track an expansion of Sydney’s desalination plant, doubling its size in order to provide more than 30% of Sydney’s drinking water: NSW Water Minister Melinda Pavey… said the expansion

2

NDIS fuels bedpan jobs boom

The November quarter employment data from the Australian Bureau of Statistics (ABS) reveals that spending on the National Disability Insurance Scheme (NDIS) continues to fuel jobs growth in the Health care and social assistance industry. In the year to September 2019, growth in Government Final Consumption Expenditure (GFCE) surged by 6.0% – the highest since

9

SUVs defy new car sales bust

This week’s new car sales figures for 2019 from the Federal Chamber of Automotive Industries (FCAI) reported a disastrous 7.8% annual decline in sales compared to the 2018 calendar year, with annual sales also 11.5% lower than their March 2018 peak: In fact, the last time annual new car sales were at this level was

1

ABS job vacancies give false hope

The Australian Bureau of Statistics (ABS) has released job vacancies data for the November quarter, which recorded a 1.7% seasonally adjusted rise in the number of vacancies over the quarter but a 0.4% decrease in trend terms: Over the year, job vacancies fell by 0.9% in seasonally adjusted terms and by 2.3% in trend terms.

9

Construction PMI crashes to 6 1/2 year low

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index fell a further 1.1 points to 38.9 in December, with deteriorating indices for activity, new orders and supplier deliveries contributing to the lowest Australian PCI® result in six and a half years (readings below 50 indicate contraction in activity, with the distance from 50

31

Melbourne is already Australia’s biggest city

The AFR reported that Melbourne’s population is projected to overtake Sydney’s population by 2026: Higher growth is being driven by rising birth rates, strong international migration and people moving from interstate and regional hubs, pushing Melbourne’s and Sydney’s populations to about 6 million by mid-2026. But Melbourne’s population will pass Sydney’s by the end of

15

Aussie households are furiously repaying debt

The latest credit data from the Reserve Bank of Australia (RBA) revealed that both personal and mortgage credit growth has tanked, with personal loan growth declining by 4.9% in the year to November 2019 and mortgage growth falling to just 2.9% – the lowest level in recorded history: The decline in mortgage credit growth comes

7

Construction jobs get stay of execution

Throughout much of 2019, MB warned that Australia’s construction industry was facing heavy job losses. For example, we wrote the following in our Christmas Special Report, released last month: The biggest single downside risk to the Australian economy is the downturn in construction activity. Gross fixed capital formation (GFCF), basically net investment, was already falling

125

Car sales tumble in 2019

by Chris Becker Car sales in 2019 dipped nearly 8% year on year according to the Federal Chamber of Automotive Industries, with just over 1 million new vehicles sold. Some details via VFACTS: The data shows that SUVs accounted for 45.5 per cent market share, up from 43 per cent in 2018. Passenger cars managed

23

Another big developer bites the dust

Via AFR: Melbourne builder Verve Construction has joined apartment developers Ralan and Steller and and national building supplier SWC as a big property development casualty of 2019. The Abbotsford-based company, owned by Robert Magdziarz, kept a relatively low profile but was undertaking several big apartment projects across Melbourne this year. Adam Nikitins and Stewart McCallum