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 One of the biggest policy blunders Australia has made on the education front was to gradually close secondary technical schools between the 1970s and 1990s, in the false belief that it is more desirable for young people to go to university. The blunders have continued in recent times, with funding for
It is often said of the USA that it is stiflingly patriotic but that it’s most redeeming feature is that its strongest critics are, in fact, Americans. This captures something about a great democracy. It may gets things wrong, disastrously so at times, but it does have a natural mechanism of self-correction in the national
The retail pain is only going to to intensify, from Damien Boey at Credit Suisse: Very weak discretionary spending numbers Yesterday, we learned that nominal retail sales flat-lined in March, below Consensus expectations for an 0.2% monthly gain. Real retail sales (ie volumes) also came in below expectations, rising by a modest 0.2% in 1Q, compared with
One by one the discretionary retailers are getting sucked into the consumer black hole: Fido is not himself. I’m not qualified but I’ll have a look. And boy is this an ugly chart: Bye, bye.
By Leith van Onselen Today’s retail sales figures should detract from Australia’s March quarter GDP when the national accounts are released early next month. As noted earlier, monthly sales values registered no change in seasonally adjusted terms but 3.1% growth over the year, with trend growth rising: In quarterly real chain volume terms, retail sales
By Leith van Onselen The Department of Employment has released its Enterprise Bargaining Agreement (EBA) data for the December quarter, which reveals a much needed rebound from record lows: AAWI for agreements current as at 31 December 2017 (neither expired nor terminated) was 2.8 per cent, which is down from 2.9 per cent in the September
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released retail sales figures for the month of March, which registered flat (0%) seasonally-adjusted growth over the month, but with annual sales growth rising to 3.1%: In trend terms, annual retail sales growth remained flat at 2.6%. The below chart maps out seasonally-adjusted sales
By Leith van Onselen Dr Katharine Betts from The Australian Population Research Institute (TAPRI) has published a new report entitled “Immigration and public opinion in Australia: how public concerns about high migration are suppressed”, which explains why policies supporting mass immigration and a ‘Big Australia’ persist against the wishes of Australian voters. Below is the
By Leith van Onselen The latest Roy Morgan Research (RMR) unemployment estimate for April registered a 0.2% increase in the unemployment rate over the month (to 9.1%) but a 0.2% decline over the year, with all jobs growth part-time: Below are the key points from the release: The workforce is 13,158,000 comprised of employed and
Via Domainfax: Many Red Rooster, Oporto and Chicken Treats store owners claim they are being pushed to the verge of bankruptcy as high costs and operating restrictions are forced on them by the company which controls the chains. The complaints are contained in a submission from franchisees to the Senate’s inquiry into the Franchising Code
By Leith van Onselen For years I have lambasted the premiers of New South Wales and Victoria for sitting back idly while the federal government floods Sydney and Melbourne with migrants each and every year, thereby adding to already chronic strains on infrastructure and housing: In the decade to September 2017, New South Wales and
Baptists and bootleggers all off the cliff together, via The Australian: Big business has joined forces with the ACTU in an unprecedented compact to back a Big Australia, calling on the federal government to maintain current levels of permanent migration amid calls for the rate to be cut. The historic coalition of peak unions, employer
Via Domainfax: Global fashion retailer Esprit is pulling out of Australia and New Zealand and will close more than 60 outlets in the region, leaving 350 employees without jobs. The company, which was founded in California in 1968 and has been operating in Australia since the 1980s, said on Thursday it had been unprofitable in
By Leith van Onselen After the ABS releases its monthly labour market report, MB writes a post on the plight of young Australians, whose job prospects have deteriorated since the Global Financial Crisis (GFC). Their plight is best illustrated by the below chart showing that both youth underemployment and labour underutilisation (i.e. unemployment and underemployment
While the Business Council of Australia is hard at work ruining its member’s reputation, the AFR is reporting on Australia’s much more sensible business lobby, The Australian Institute of Company Directors (AICD): The calls follow a prediction from Australian Institute of Company Directors chair Elizabeth Proust that the case for company tax cuts will fail
From the AIG: The Australian Industry Group Australian Performance of Services Index (Australian PSI® ) fell by 1.7 points to 55.2 points in April 2018 (seasonally adjusted), signaling a slight deceleration from March. Australian PSI® results above 50 points indicate expansion, with higher numbers indicating stronger growth rates. • The Australian PSI® has indicated positive
By Leith van Onselen Over the past year or so, we have witnessed a growing backlash against Sydney’s break-neck population growth and the deleterious impact it is having on infrastructure, housing and liveability. In April last year, former NSW Treasury boss, Percy Allen, called for Australia’s immigration intake to be halved, noting the intense pressure
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released its cost of living indices for the March quarter, which revealed a jump in cost of living pressures across most cohorts: According to the ABS, the cost of living for households headed by working Australians rose by 2.0% in the year to March
How the mighty fall: Going ex-growth is not quite priced yet:
Dastayariagate is the gift that keeps giving: China’s Foreign Ministry issued the travel advice on a social media account ahead of the current long weekend in China, which is a popular time for families to travel overseas. In a series of posts over several days, it issued security warnings for Australia, the US, South Korea,
By Leith van Onselen Back in September, Labor’s infrastructure spokesman, Anthony Albanese, cited parliamentary library figures showing that infrastructure investment under the Coalition would decline from 0.4% as a share of GDP to 0.2% over the next 10 years: “It will be cut in half”… “That has a real impact on growth and on jobs.
Readers will know that for some time MB has put forward the proposition that the much touted infrastructure mini-boom is a short term phenomenon owing to this kind of investment only adding to growth while the amount being spent is increasing. It’s no good remaining on a high plateau of spending, it must increase every
By Leith van Onselen Ecologists have today warned that Melbourne’s water supply is at risk due to the “collapse” of state forests caused by logging. From The Guardian: New research led by Prof David Lindenmayer of ANU, published in PNAS journal on Tuesday, has found the ecosystem has already begun to undergo a “hidden collapse”…
By Leith van Onselen ABC News last week published an alarmist article on the exodus of young people from South Australia (Adelaide in particular), with the new Liberal Government deeming that “urgent action is needed to address the situation”: Adelaide’s population would have flatlined last financial year if not for the arrival of overseas migrants…
By Leith van Onselen The Australian’s Alan Kohler has labelled the rapid population growth in Melbourne and Sydney a “national emergency” and called for immigration to be “drastically cut”: Whatever is left [in the Budget], plus any more windfalls that arrive over the next few years, should be spent on rail transport, in my view.
Via AIG: ▪ The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI® ) fell 4.8 points to 58.3 points in April, indicating a slower – but still buoyant – rate of expansion in April, after reaching a record high in March (seasonally adjusted). Results above 50 points indicate expansion with higher results indicating
For a long time I have observed a plain historical truth. Colonial sub-altern economies and societies tend to reflect the structures and values of their hegemon. It happens through both coercion and willing submission for personal gain. This is clear throughout the history of colonialism. Indeed we need look no further than our own. First we
By Leith van Onselen From The Australian’s Weekend Inquirer came the below triumphant article on how Melbourne’s population will soon overtake Sydney’s: While almost no one has been looking, Melbourne has been attracting people, business, technology and talent, and stealing a march on Sydney. Population growth in the past 12 years has been staggering in
By Leith van Onselen MB has long decried Australia’s failed demand-driven university system, which uncapped the number of university places, thereby driving a massive oversupply in university enrolments and graduates: Leading to poor employment outcomes, despite the massive cost to both the Budget as well as university students: As well as collapsing wages growth for
From David Uren today: A research study by Commonwealth chief economist Michael Blythe, which draws on surveys of the bank’s customers, backs the Reserve Bank’s view that elevated housing debt is not an imminent threat to financial stability, with the largest debts held by those best able to afford them. But Blythe shows the build-up
