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.


Australia’s terms-of-trade collapses

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.


Hooocoodanode? Chinese student ban dodger has virus

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


CS: Australian GDP to be weak

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%


Australia’s poor productivity is no puzzle

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


Unions: Throw open borders to cheap, sick Chinese workers

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


Consumer confidence crashes anew

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


As Morrison unleashes virus, Australia prepares for shut down

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


Australian households’ long, painful wage recession

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


Australia “most exposed” to virus shock

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


ANZ job ads rise for second straight month

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


Business indicators mixed in Q4

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


Ken Henry: Australian households are struggling

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.,


Australia’s biggest dealership sees further car sale falls

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


“Perfect storm” decimates Australian retail

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


5G to cut NBN’s subscription lunch

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


More Coalition MPs demand Newstart lift

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


Welcome to the COVID-19 Financial Crisis (CFC)

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


Morrison steps back from suicidal border opening…for a week

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


NBN is an embarrassment

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.


Aussie tourism gutted by fires and virus

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


Actual capex tanked in Q4

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


ABC TV: MB Fund vs Macquarie on coronavirus fallout

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


Why Australian families are feeling poorer

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:


CS: Australian GDP already recessionary

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.