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 An EY survey has found that just 28% of Australians expect to reduce their debt in 2019, down from 60% in 2018. The survey also found that more than 60% of respondents were ‘extremely’ concerned about the cost of living, suggesting that more people are not able to cut their debt
Via ANZ weekly consumer confidence: The fall in confidence last week would be seen as disappointing in Canberra given the near-term boost to household incomes delivered in the Budget. Given the usual volatility in the weekly data, we don’t believe the decline indicates a negative response to the Budget. Rather, it suggests the announcements failed
By Leith van Onselen Australia’s migrant slave economy has been exposed again, with farmers labelling “outrageous” a Fair Work Commission (FWC) ruling that fruit pickers should be entitled to overtime if they work excessive hours. From The ABC: One of Australia’s biggest fruit producers says a ruling this week by the Fair Work Commission is
By Leith van Onselen The hidden costs of Australia’s ‘Big Australia’ mass immigration policy was drawn further into view with a report by Melbourne University researchers claiming Melbourne risks losing its food bowl as urban development encroaches on fertile farmland: Melbourne’s food bowl is at serious risk of disappearing to housing development unless significant changes are
The ANZ job ads series has recorded a further 1.7% decline in March to be down 6% year-on-year: Despite the poor result, ANZ’s head of Australian Economics, David Plank, has chosen to ignore the data and instead put lipstick on a pig: “Job ads are not showing any signs of reversing the weakness seen for
By Leith van Onselen Last week’s NAB Business Survey revealed crashing business confidence and conditions, with broad weakness across the sub-indices: Now Roy Morgan Research has released its Business Confidence Survey for March, which reveals that confidence over the March quarter was the lowest since 2011: Business Confidence in March 2019 is now a significant
By Leith van Onselen For years a multitude of reports have emerged highlighting that the boom in international students is badly degrading Australia’s higher education system. Several years ago, both Fairfax and the ABC reported that international student colleges had taken cash kickbacks in return for helping overseas workers and students win Australian visas using fake
Via the AFR comes the IMF in an unusual break with the tradition of agreeing with whatever the locals say: Australia’s housing market contraction is worse than first thought, says a top IMF analyst, leaving the economy in what he called a “delicate situation” that boosts the need for faster infrastructure spending and even potential interest
Let’s reprise some vestigial Goldman Sachs analysis from 2016: A sharp turn in Australia’s national income dynamic, which we flagged in early August, now looks likely to move significantly higher following the spikes in coal and iron ore prices in the closing months of 2016. Although we expect prices to fall from current levels for these commodities,
By Leith van Onselen Just when you though Australia’s ‘skilled’ migration settings couldn’t get any worse, we got the following from the Committee for Adelaide [my emphasis]: Migration experts warn a new plan spruiked as driving population growth in South Australia is practically “problematic, risky and very costly” to local businesses because the government hasn’t
Via the AFR: Analysis by The Australian Financial Review shows growth in bank loans of between $100,000 and $500,000 has been negative for the last three quarters, with growth in that loan segment down 0.5 per cent in the December quarter – the worst rate of annual growth for seven years. Falling house prices, which
Via The Conversation comes a round table: The Australian economy will remain healthy for long enough to enable the government to claim it as a strength in the lead-up to the May election, but the first Conversation Economic Survey points to a fairly flat outlook beyond that, with a 25% chance of a recession in
Good stuff from Michael Pettis at Bloomie (a few weeks old but worth revisiting): What’s less-understood even now is that if China begins a serious deleveraging, reported GDP growth rates will fall by a lot more than expected – by more than the amount of non-productive activity that had formerly been capitalised. This is clear from
It’s only going to get worse from here: Full report.
By Leith van Onselen The ACTU has failed workers yet again, proposing a ridiculously low wage floor for temporary skilled workers of only $62,000 a year: A senate inquiry into Australian business’ use of temporary work visas has recommended significant tightening of the scheme. The ACTU argued that the current rules deny locals jobs and
By Leith van Onselen The Federal Chamber of Automotive Industries (FCAI) has released its new car sales figures for March, which revealed a heavy 7.1% decline in overall sales relative to March 2018, with first quarter sales also the lowest since 2014: It’s the lowest March sales tally since 2014, when 97,267 vehicles were sold.
By Leith van Onselen For years, MB has questioned the efficacy of the Migration Council of Australia, which purports to be an “an independent, non-partisan, not-for-profit body established to enhance the productive benefits of Australia’s migration and humanitarian programs”. The Migration Council is chaired by one of Australia’s biggest business lobbyists, Innes Willox, who is
By Leith van Onselen The Australian Bureau of Statistics (ABS) today released trade data for the month of February, with Australia’s trade surplus jumping to $4.8 billion from $4.4 billion in January: The result beat expectations of a $3.7 billion surplus. Below is the time series chart, which shows that it was the biggest monthly
Via Westpac: Retail sales surprised significantly to the upside in February, a 0.8% gain coming very much against the run of play. Sales had risen just 0.1% in January after a 0.4% fall in December with very weak private sector business surveys suggesting conditions had remained difficult in February as well. The sales data instead showed
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released retail sales figures for the month of February, which recorded a 0.8% rise in retail sales over the month in seasonally-adjusted terms, with annual sales growth rising to 3.2%: In trend terms, annual retail sales growth fell to 2.9%. The below chart maps
By Leith van Onselen Ever since the Morrison Government announced that it would cut Australia’s permanent migrant intake to 160,000 in order to “relieve congestion in the cities”, MB has declared it a fake cut. This view is based on the fact that while the permanent intake has been reduced moderately, the government has opened
Via the excellent Damien Boey at Credit Suisse: With an election looming, we were expecting the FY20 budget to contain plenty of sweeteners and stimulus. Indeed, we were expecting the LNP to draw the ALP into more stimulus, bringing forward the increment to growth in the minds of investors. But we were wrong. We highlight
By Leith van Onselen In late 2006, just prior to the Commonwealth Games, the Victorian Government opened the redeveloped Southern Cross Station in Melbourne’s CBD, which was completed as part of a $700 million public-private partnership with IFM Investors. Just 12 years later, after an insane 1.2 million people has been added to Melbourne’s population,
Fugly from the AIG: Some pretty dour stuff: Business-oriented services sectors: All business-oriented sectors in the Australian PSI® were weak in March (trend). Finance & insurance was very mildly negative, as was business & property services. The wholesale trade sector reported firmly negative conditions, while transport & storage also deteriorated. This was the first month
From RLB: Q1 2019 RLB CRANE Index® HIGHLIGHTS: RLB Crane Index® maintained at 173 735 cranes observed across Australia, 530 residential, 205 non-residential Number of cranes same as last edition Residential Index maintains level of 170 Crane numbers in Melbourne pass 200 for the first time Record number of
Because falling house prices always boost consumption: • We have made some significant changes to the NAB online series (for more details see Appendix). Importantly, we have merged SME and Corporate Online into a single index, and provide more detail by region and industry on a monthly basis. • On that basis, the NAB Online
By Leith van Onselen Many of us have been hoping in vain that a Shorten-led Labor Government would follow the will of the electorate and lower Australia’s immigration intake back to sensible historical levels: Sadly, the opposite is true. In February, Labor’s shadow immigration minister, Shayne Neumann, committed to a turbo charged migrant intake: Mr Neumann
By Leith van Onselen Ahead of the federal budget tonight, the Grattan Institute has put together a useful fact sheet including detailed distributions of what Australians actually earn. It covers: the distribution of taxable incomes reported by the Australian Taxation Office (ATO); the distribution of individual and household incomes reported by the ABS; and the
“Recovery” over? Q4 EBAs were not so good, falling from 3.2% to 2.8%: The public sector bounced disappeared: Private sector at least held at 3%: More weakness is only a matter of time as the output gap grows again.
Via the excellent Damien Boey at Credit Suisse: Following on from a very disappointing 4Q real GDP print, we were hoping that 1Q would look much better, if only on the back of favourable comparables. However, the data has not evolved this way. We note that in 1Q: Retail sales have grown anaemically. January sales
