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.
New automotive data from Roy Morgan shows significant changes to who is likely to be behind the wheel in Australia. The proportion of people in younger age groups driving is decreasing, while the proportion in older age groups driving is rising: As of December 2019, the age group with the highest proportion of vehicle drivers
The miracle current surplus Australia has enjoyed for two quarter all but disappeared in Dec 19 as iron ore and, especilly, coal got thumped: It’s still rising on an annual basis: Net foreign debt fell slightly: I wouldn’t give up hope yet on more CAS. As the virus ravages domestic demand through winter and China
Within today’s dump of balance of payments data that feeds into tomorrow’s December quarter national accounts release was the important news that Australia’s terms-of-trade slumped 5.3% in seasonally adjusted terms and by 1.9% in trends terms: Over the year, the terms-of-trade fell by 0.6% in seasonally adjusted terms but rose by 1.6% in trend terms.
Via Domain: An international student living in Brisbane has become the seventh person to test positive for coronavirus in Queensland. The 20-year-old man from China is in a stable condition in isolation in the Royal Brisbane and Women’s Hospital. Brisbane Times understands the student has not attended any university classes and his room-mate is undergoing
Via the excellent Damien Boey at Credit Suisse: We now have all the partial indicators we can get our hands on to now-cast 4Q real GDP, covering between 52-90% of GDP. The most recent data points included: Net exports: the contribution to growth was weaker-than-expected, at only 0.1% compared with the Consensus forecast of 0.2%
Alan Kohler is the latest commentator that has attempted to solve the puzzle as to why Australia’s productivity has slumped: The Productivity Commission’s annual “Insights” publication, which stated that both labour and multifactor productivity fell for the first time since the mining boom, by 0.2 per cent and 0.4 per cent respectively. It means the
With the coronavirus spreading like wildfire, and Australian wages hovering near record lows, the union movement has demanded the federal government open Australia’s borders to temporary Chinese migrant workers: Unions are calling on the federal government to lift the “discriminatory” Chinese travel ban, with some businesses struggling to cope without temporary workers who remain trapped
Via ANZ: ANZ’s survey of consumer confidence dived 3.2 per cent last week, to a five-and-a-half year low as coronavirus concerns spread across the world. The current economic conditions subindex declined by 16.6pc, the largest since January 2009, as the stock market fell into correction territory. “The fall seen in ‘current economic conditions’ shows that
Never waste a good crisis. The great Australian virus scab grab has begun with business. At the AFR: Peak business groups have demanded the government use the economic downturn being caused by the coronavirus outbreak to unveil a “significant ” investment incentive in the May budget. The groups elevated their demands for a business investment
The December quarter Business Indicators report was released by the ABS, which includes aggregate wages & salaries data, namely “gross earnings before taxation and other deductions” and “includes provisions for employee entitlements”. In order to get a better sense of how Australian workers are faring, I have deflated this aggregate nominal wages & salaries data
Yep, at the AFR: Australia’s economy stands on the front line of the worsening global coronavirus outbreak and faces recession if China doesn’t start to recover this month, says Donald Trump’s former top economics adviser. …He predicts the Chinese economy will contract 10 per cent in the first quarter, in annualised terms, pushing Australia’s economy
February’s ANZ job ads have been released which reported the second consecutive rise, up 0.7% in February and almost 5% over the past two months: However, job ads were down 10.2% year-on-year. According to ANZ, the result was a surprise to the positive side. However: the past two months of gains weren’t enough to regain
Via the ABS comes mixed GDP partials: Inventories beat analysts expectations of -0.1% and will add to GDP after falling by 0.2% seasonally adjusted in Q3. However, profits fell hard and missed analysts expectations of a 1.3% decline. At this stage, Wednesday’s Q4 GDP print is still looking soft given the sharp falls in construction
The former secretary of the Australian Treasury, Ken Henry, believes Australian households are struggling, wedged between rising housing costs, insecure work arrangements, and low wage growth: I’m no longer so comfortable with the increasing ‘casualisation’ of the labour market . Over the past 40 years Australian house prices have approximately quadrupled in real terms (i.e.,
It’s not a very good idea to import a bunch of Europeans and put them at the centre of a screaming crowd for a week. But hey, the show must go on: Formula One officials will begin shipping equipment from London to Melbourne on Monday UK time, while teams will start transporting their race cars
From the AIG: You ain’t seen nuthin’ yet. Full report.
Via Martin North come his new virus scenarios for property: The video Q&A: My base case is now a global pandemic based around winter periods. In my mind, that more equates to Martin’s global disruption scenario for assets. Even then I’ll be surprised if house prices fall that far in nominal terms. In real, over
The Federal Chamber of Automotive Industries (FCAI) new car sales report for January was a sobering read for dealerships around Australia. According to FCAI, annual car sales collapse to their lowest level since mid-2012, down 12.4% from their March 2018 peak, after falling for 22 consecutive months: Yesterday, the chief executive of Australia’s biggest car
Ishka CEO Toby Darvall says “a perfect storm” of conditions has made things incredibly tough for Australian retailers. Darvall believes that consumers have not been spending due to the bushfires plus concerns about job security, flat wage growth and coronavirus: CEO Toby Darvall said he had never seen conditions like it. “This has been by
Telstra this week announced that it will no longer sell 100mbps plans to consumers with fibre to the kerb and fibre to the node connections to the NBN. CEO Andy Penn says most of those connections are not capable of handling such speeds, and has signaled that Telstra may instead offer a fixed wireless 5G
Nationals MP Pat Conaghan has joined Barnaby Joyce in demanding a $75-week lift to Newstart: First-term MP Pat Conaghan, who represents the New South Wales mid-north coast seat of Cowper, has broken ranks from Government policy and told the ABC he wants the Coalition to raise Newstart by $75 a week. Mr Conaghan joins a
Economic forecasters are amusingly trying to pay catch-up, via Domain: Mr Morrison said the government was preparing to help the areas of the economy most at risk from the breakdown of supply chains and the absence of tourists and university students. “It’s a health crisis, not a financial crisis. But it’s a health crisis with very
Via the AFR: Prime Minister Scott Morrison has moved to get ahead of the coronavirus outbreak being declared a global pandemic and has activated the government’s emergency response plan. The declaration triggered goverment preparations for a more severe virus outbreak and planning to shore up medical stockpiles, supply chains and health resources. The health crisis
The NBN’s embarrassingly slow speeds were thrust into the spotlight recently when the Ookla fixed broadband speed rankings ranked Australia 68th out of 177 nations, down three places from the prior year. According to Ookla, Australia’s average broadband speed was just 41.8 megabits per second, far below the global average of 73.6 megabits per second.
A draft report from Deloitte Access Economics has highlighted the impact of the summer bushfires and the coronavirus outbreak on the Australian economy. The tourism industry is expected to be particularly hard hit, with the number of international visitors forecast to decline by 10-15 per cent in 2020: Up to 1.5 million international visitors will
The Australian Bureau of Statistics (ABS) today released data on capital expenditures (capex) for the December quarter, which registered a 2.8% seasonally adjusted fall in capex volumes over the quarter and a 5.8% decrease over the year (see below table). The 2.8% quarterly decline badly missed market expectations of a 0.5%. rise The first chart
MB Fund Head of Investment, Damien Klassen, pwning Macquarie Private Wealth on ABC The Business last night: According to the silver donut, central banks can cure viruses… Damien Klassen is Head of Investments at the Macrobusiness Fund, which is powered by Nucleus Wealth. The information on this blog contains general information and does not take into
Fidelity International has released research which helps to explain why Australian households are feeling the pinch, despite the ABS’ reported low growth in inflation and its official cost of living indices. According to Fidelity, there has been low inflation in discretionary goods that you may want, but high growth in non-discretionary growth that families need:
First, it is the timing of the outbreak. We think it fair to assume that cold has at least some impact on the virus spread: But because it has begun in the north hemisphere winter, it will largely be over there by April/May. That puts the global growth shock in Q2 amd Q3, just when
Via the excellent Damain Boey at Credit Suisse: We have just received construction work done data for 4Q. Construction investment was well below expectations, falling by 3% over the quarter, but with upward revisions to prior quarter’s data. Year-ended growth fell to -7.4% from -7%. Compositionally, declines were broadly-based across residential, non-residential and engineering categories.
