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.

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Aussie retail sales still booming

The ABS has released retail sales data for March, which recorded a 1.6% monthly increase with annual growth rising to 9.4%: Discretionary retail drove the sales: Whereas sales rose across all jurisdictions other than South Australia: The next chart comes from Callam Pickering and shows that cafe & restaurant sales are finally catching up with

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Consumer confidence bombs ahead of rates decision

Aussie consumer confidence has bombed ahead of today’s rates decision by the RBA, according to the ANZ/Roy Morgan Research consumer confidence index. As shown in the next chart, Aussie consumer confidence crashed by 6.0% over the last week as annual headline inflation surged by 5.1%: Commenting on the result, ANZ’s head of Australian economics, David

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Russian-Ukraine war catapults commodity prices into stratosphere

The Russian-Ukraine war has catapulted the Reserve Bank of Australia’s (RBA) index of commodity prices to its highest ever level. As shown in the next chart, the commodity price index soared 3.4% in April in SDR (currency-weighted) terms to be up 19.4% over the quarter and by 39.9% year-on-year: The RBA’s commodity price index in

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Homebuilder delivers “profitless boom”

Say what you will about the Morrison Government’s HomeBuilder stimulus, but it has driven a huge uplift in dwelling construction over the pandemic with builders ‘run off their feet’: However, many builders are experiencing a “profitless boom” on the back of rising input costs, which is even driving some out of business: The Master Builders

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ACTU attacks Coalition for decade of lost wages, ignores immigration

A new report from the Australian Council of Trade Unions (ACTU) claims that a 10.3% increase in workers’ productivity since the Coalition government won office in 2013 has not been reflected in wages growth. The peak union body says the average worker would have been $10,000 better off if real wages had kept pace with

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ANZ job ads fall

ANZ Australian Job Ads dropped 0.5% m/m in April but are 57.3% above the pre-pandemic level. Labour market conditions are tight and we expect strong #labour demand to lead to solid employment gains in the coming months. #ausecon #jobs @DavidPlank12 @arindam_chky pic.twitter.com/4s0xfZmbbr — ANZ_Research (@ANZ_Research) May 2, 2022 To top, or not to top. That

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Dictator Dan’s vaccine mandate worsens labour shortages

The Victorian government’s decision to retain its vaccine mandate has sidelined many of the state’s public school teachers. The government requires all public school teachers to have triple-vaccinated in order to keep their jobs, and a Department of Education spokesman has indicated that 99.2% have had a booster shot. However, it is believed that in

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Australia to join 1920 global bust rerun

Now that Australia has printed its first decent inflation number in ten years, the hysteria for rate hikes has built to a crescendo.  I now hope that the RBA hikes in May just to finish off the appalling Morrison Government. Alas, that may be the price we have to pay because in panicking about inflation

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Minimum wage arrives on Aussie farms

Amid the conga-line of evidence showing that temporary migrants have been ruthlessly exploited on Australia’s farms, which has frequently been labelled “modern slavery”, the Australian Workers Union (AWU) last year lodged an application with the Fair Work Commission (FWC) to amend the Horticulture Award to guarantee a minimum casual rate of pay for all farm

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Aussie CPI inflation soars, smashes expectations

The ABS has just released CPI data for the March quarter, with headline inflation surging by 2.1% over the quarter and by 5.1% year-on-year: Soaring petrol prices (Transport) drove the rise: Trimmed mean annual inflation, which excludes large price rises and falls, increased to 3.7% – the highest since March 2009: Both headline inflation (2.1%

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Business groups demand tax incentives, free Medicare and free flights to lure migrants

The Business lobby’s migrant scab grab is unrelenting. So far this year, business groups have demanded: Uncapped access to temporary migrant workers and the abolition of labour market testing so-called Temporary Skills Shortage (TSS) visas. Speedier and cheaper visa application processes. Doubling of the permanent skilled migration intake to 200,000 a year to make up

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Australia’s migrant population falls for first time 20 years

The Australian Bureau of Statistics (ABS) yesterday released a new report, entitled Australia’s Population by Country of Birth, which showed that 7.5 million Australians were born overseas as at June 2021, down from 7.7 million a year earlier. In percentage terms, 29.1% of Australians were born overseas in 2021, down from 29.8% a year earlier:

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Labor to axe Coalition’s slave driving Agricultural Visa

The Coalition’s Agricultural Visa program came into effect in October and provides pathways for permanent residency for workers from 10 South-East Asian nations provided they pledge to become indentured with an employer for at least three years. The requirements attached to the “Horticulture Industry Labour Agreement” relating to these visas are also very loose: The

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Inflation expectations rocket ahead of CPI data

Aussie inflation expectations have rocketed ahead of tomorrow’s March quarter CPI release by the Australian Bureau of Statistics (ABS). According to Roy Morgan, inflation expectations over the next two years soared by 0.7% to 5.8% in March to its highest level in almost a decade (September 2012): The increase in March was the biggest monthly

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Use pensioners to solve Australia’s labour shortage

National Seniors Australia (NSA) chief Ian Henschke believes Australia’s inflexible aged pension means testing discourages older Australians from working, thereby contributing to labour shortages. A recent NSA survey of pensioners revealed that 20%, or roughly 500,000, would consider re-entering the workforce if they could keep their pension entitlements and merely pay tax on their work

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Aussie leading index pops

Westpac with the note. — This is the fastest growth rate of the Index since May 2021. The growth rate in the Index had been slowing through the first half of 2021 from the explosive recovery in October 2020 (peak monthly growth rate in November 2020 of 4.96%) as the economy emerged from the initial