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.


Roy Morgan business confidence crashes to 40-month low

By Leith van Onselen Last week’s NAB Business Survey revealed crashing confidence and conditions, with trading, profitability and employment all plummeting: Now Roy Morgan Research has released its Business Confidence Survey for January, which reveals that confidence has crashed to its lowest level since August 2015 and recorded the worst January reading on record: Driving


Sydney trains buckle under “off-the-charts” demand

By Leith van Onselen Late last year, the endless immigration-driven population flood drove Sydney’s train network into meltdown: Pressure on Sydney’s Town Hall train station has grown significantly during peak periods due to a 23 per cent surge in passengers in just three years, raising the prospect of staff limiting access to platforms more often


One chart kills Phil Lowe’s jobs hopium

By Leith van Onselen Recall Phil Lowe’s optimistic outlook for the Australian labour market: The outlook for the labour market remains positive. The national unemployment rate currently stands at 5 per cent, the lowest in over seven years (Graph 5). In New South Wales and Victoria, the unemployment rate is around 4¼ per cent. You have to go back to


Consumer anxiety booms!

Via NAB: “Anxiety increased most over the cost of living, and despite a healthy labour market, concerns over job security also climbed to its highest level since mid-2016.” “In terms of household finances, retirement remains the big worry, followed by providing for the family’s future, raising $2,000 for an emergency, and medical and healthcare costs.


ANU: Aussie household incomes are falling

By Leith van Onselen The Australian National University’s (ANU) Centre for Social Research & Methods estimates that household income has increased by 8.5% over the last three years. However, the increase in the cost of living over this period means that real income per person has fallen by 2.9%. The analysis also shows that so-called


Construction PMI stinks it up

Not much joy from the AIG. Check out apartments: More: Construction sectors: Apartment building (24.9 points trend) was the weakest performing sector, declining for a tenth consecutive month and at the sharpest rate since July 2012. House building (34.4 points trend) also remained in negative territory with its rate of contraction the most marked in close


Why suburbs must be the next frontier for cities policy

By Ross Elliott, cross-posted from The Pulse: “Around the world, the vast majority of people are moving to cities not to inhabit their centres but to suburbanise their peripheries. Thus when the United Nations projects the number of future ‘urban’ residents… these figures largely reflect the unprecedented suburban expansion of global cities.” That’s from the


Higher education has become a key Australian visa rort pathway

By Leith van Onselen A fortnight ago, the Victorian Government called for a review of entry requirements into Australian universities after growing evidence had emerged that foreign students with poor English language proficiency are badly eroding education standards and placing undue strain on lecturers and university staff. This was immediately followed by academics admitting to Fairfax


Nick Scali warns

Nick Scali produced a good result today: But this spoiled the party: Looks like the consumer retrenchment that began in December got worse in January. Not that the market read that bit, gapping up instead of down!  


Chris Bowen can’t fix inequality without fixing immigration

By Leith van Onselen Shadow Treasurer Chris Bowen delivered the Chifley Oration in Melbourne on Monday, whereby he argued that economic growth is too low, more than a million Australians are under-employed, and “far too many” workers are being underpaid: Under the Liberals, the economy is not working for working people… Too many Australians are being


REDRUM: Lunatic RBA slays economy

Policy error is the name of the game at the Australian central bank. Witness: house prices in Australia’s two largest cities are in outright crashes; it is spreading steadily to other capitals; building approvals are crashing coast to coast; infrastructure investment has topped out; credit is swiftly falling towards zero; the NAB business survey has


New car sales join Aussie house price smash

By Leith van Onselen The Federal Chamber of Automotive Industries (FCAI) has released its new car sales figures for January, which revealed a heavy 7.4% decline in overall sales relative to January 2018, driven by a 12.0% decline in passenger motor vehicles (PMVs): Tony Weber, CEO of the Federal Chamber of Automotive Industries (FCAI) attributed


Trade surplus rockets on collapsing domestic demand

By Leith van Onselen The Australian Bureau of Statistics (ABS) today released trade data for the month of December, with Australia’s trade surplus jumping to $3.7 billion in December from $2,3 billion in November: The result smashed expectations of a $2.2 billion surplus. Below is the time series chart, which shows that it was the


NSW Government replaces locals with Indian IT workers

By Leith van Onselen Australian governments’ pretend concern over Australia’s universally weak wages growth (see above chart) has been exposed again, with the NSW Government explicitly mandating that the winning bidder for its Roads and Maritime Services IT contract – Indian outsourcer Wipro – employ 30% of its workers from India to keep costs low. From


Australian services PMI craters in January

From the AIG: Business-oriented services sectors: The only business-oriented sector of the Australian PSI® to expand in January was property & business services, which improved slightly from December. Finance & insurance and transport & storage experienced slightly negative conditions. The wholesale trade sector reported firmly negative conditions, with particularly weak sales, new orders and employment


Australian leading economic indicator crashes into recession

Via Damien Boey at Credit Suisse: We have updated our proprietary activity tracker from our recent article “Positioning for RBA forecast downgrades” dated 30 January 2019. Note that the update is merely preliminary, as we do not yet have all the relevant components for a February reading. But we do have most of them: From


Labor to back wage crushing Indonesian FTA

By Leith van Onselen It is considered unlikely that any free trade deal between Australia and Indonesia will be signed before the federal election. Elections in Indonesia are due in April, while there is still unhappiness in Indonesia over Prime Minister Scott Morrison’s 2018 suggestion that Australia might re-locate its embassy in Israel to Jerusalem.


Hey Gittins, weak wages won’t fix themselves

Ross Gittins is a survivor but that takes a lily liver: Two or three years ago, I was happy to entertain the view still publicly espoused by the Reserve Bank (and still happily hidden behind by Morrison) that the wage problem was simply cyclical…Sorry, that possible explanation gets harder to believe as each quarter passes


ACCI admits widespread migrant wage theft

By Leith van Onselen The Australian Chamber of Commerce & Industry (ACCI) has warned that wage exploitation is a systemic problem. The ACCI has used its pre-Budget submission to urge the federal government to provide the Fair Work Ombudsman (FWO) with extra funding to combat wage underpayment, arguing that it needs an additional 50 workplace


Australia’s coal recession extends

Via The Australian: China has restricted imports of Australian coking coal at up to a dozen ports in the northeast in a move that may hamper the ­nation’s biggest export market amid high prices for the raw commodity. Ports in northeast China have been verbally informed that shipments of Australian coal face lengthy custom delays,