Late last week, Ross Gittins delivered the keynote address at the Australian government’s National Conference on Resources and Energy. The speech was an absolute barn burner delivered over dinner and one wonders if it didn’t sour the meal. Titled The Political Outlook for Reform, the address was so honest that it hasn’t made any national
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.
Each month, following the release of the monthly labour force statistics by the Australian Bureau of Statistics (ABS), Professor Bill Mitchell, Director of the Centre of Full Employment and Equity at the Charles Darwin University, provides a comprehensive report on the data that is well worth a look. Below are some key extracts from this
By Leith van Onselen As summarised earlier, the Australian Bureau of Statistics (ABS) today released labour force data for the month of September, which registered a 0.1% seasonally-adjusted fall in the headline unemployment rate to 5.6%. The result beat analysts’ expectations of unemployment remaining at 5.8%. Total employment rose by a seasonally adjusted 9,100 jobs,
From ANZ: Today’s data and the slight improvement in the suite of other labour market indicators are consistent with the RBA being on hold for several months. Until last week we had pencilled in a rate cut for November but pushed this out to February next year. The recent improvement in confidence and stabilisation in labour
The Australian Bureau of Statistics (ABS) has just released labour force data for the month of September, which recorded a fall in the headline unemployment rate to a seasonally-adjusted 5.6%, down from 5.8% in September. The result beat expectations, with analysts forecasting unemployment to remain steady at 5.8% (see below table). The positive headline result
By Leith van Onselen The Australian has published an article today citing a new Government-commissioned survey (available here), which found that the overwhelming majority of Australians are tiring of taxpayers supporting the manufacturing industry. Two-thirds also believed that the industry is in terminal decline, with only 37% of respondents believing Australia can compete globally. However,
By Leith van Onselen PIMCO has released an interesting note prognosticating on whether Australia can successfully navigate the mining capex cliff. According to PIMCO: Recent data suggest that mining investment is tapering, with the sector detracting from real growth in the first half of 2013. We see three possible growth scenarios… First, the good growth
The Department of Employment has today released its Monthly Leading Indicator of Employment, which registered a 1.4% fall in October – the second consecutive monthly drop following September’s 0.02% fall (see next chart). The Indicator is supposed to anticipate movements in the growth cycle of employment via a composite index of four weighted series (ANZ
By Leith van Onselen Credit Suisse has today released its 2013 Global Wealth Report, which reveals that Australian households are the wealthiest in the world when measured by median wealth. From the Age: The median wealth of adult Australians stands at $US219,505 ($233,504) – the highest level in the world, according to the Credit Suisse
From Westpac: The unemployment expectations index rose just 0.6% in Oct, which you would consider to be broadly flat following the 6.6% fall in Sep. Sep was the largest monthly improvement (a fall in the index suggests consumers are not expecting unemployment to rise as much as they were) since the 6.9% fall in Nov
By Leith van Onselen Australia’s discretionary retail sector has been doing it tough. In the year to August 2013, discretionary retail grew by just 1.0% – well below both population growth and inflation. Department stores – a sub-component of discretionary retail – have performed particularly poorly, with sales slumping recently and growth turning sharply negative
A nice summary today of the IMF’s overnight release of the World Economic Outlook from Tim Colebatch: ”Reassessment of US sovereign risk could reduce global output by several percentage points of GDP,” the IMF says. On its new forecasts released on Tuesday night, that would wipe out global growth. The forecasts assume that Washington’s warring
There is no doubt Australian data is in a cyclical upswing. Confidence measures and PMIs may not be top tier data but they are indicative nonetheless and show a strong bounce off recessionary activity levels underway in services, manufacturing and construction. This morning I want to debate to what extent this is the result of
While PM Abbott is busy with an FTA, China has moved to give WA access to its live cattle market: WA Premier Colin Barnett was in China on Tuesday to witness the signing of a Memorandum of Understanding, which could see cattle shipments start as early as next year. …“It could be an absolute goldmine
By Leith van Onselen Yesterday’s overseas short-term arrivals and departures figures for August contained some welcome news for the tourism industry, with the number of inbound tourists rising, whereas the number of Australians holidaying overseas fell marginally. The number of short-term visitor arrivals rose by a seasonally-adjusted 2.3% in August, whereas short-term resident departures fell
Of the three institutions in Australian liberal democracy currently in disgrace for corruption allegations, the private sector is suddenly leading on accountability measures. From the AFR: The latest developments in the Leighton bribery scandal send a clear message that other jurisdictions take the issue far more seriously than Australia. The sudden resignations of former Leighton
Why must we always be on the verge of another boom? Because it makes good reading, I suppose. Deloitte has seized the headlines today with its forecast of a new China boom for Victoria and New South Wales. From the SMH: Victoria’s economic strengths will sweep it ahead in the next 20 years, positioning it
COMSEC is out with petrol update: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 1.2 cents a litre to 150.7 c/l in the week to October 6. The metropolitan price fell by 1.3 c/l to 148.4 c/l, while the regional average price fell by 0.9 c/l
Fairfax continues to apply pressure on Tony Abbott over his expenses: Prime Minister Tony Abbott says he is entitled to bill taxpayers more than $1000 in travel and accommodation costs to compete in the Port Macquarie Ironman, as he also attended other community events in the marginal electorate during the 2011 visit. The revelation adds
By Leith van Onselen The Australian Bureau of Statistics (ABS) yesterday released visitor arrivals and departures data for the month of August, which again revealed surging net long-term migration into Australia, but falling net permanent migration. In the year to August 2013, there were 680,200 permanent and long-term arrivals into Australia (a new record), partly
The October NAB Survey is out and shows we’re entering a cyclical bounce. Here are the internals: Confidence is at a three year high. Conditions still suck but are improving at a decent clip. Here are the component charts: That looks like we’re just past the bottom. But there are reasons to expect a sharp
Cross-posted from The Conversation. With the Coalition government abolishing the Major Cities Unit and the NSW planning system in disarray, last week’s International Society of City and Regional Planners congress, ‘Frontiers of Planning: Evolving and declining models of planning practice’, seemed timely. Looking back, perhaps one of the greatest urban, economic and social planning failures of the last
Tony Abbott’s “open for business” agenda is taking shape. We already know it includes abolishing taxes on big business wherever possible, including for mining and carbon, that it embraces rising house prices, that it prefers to hide public debt via user-pays toll roads without due productivity analysis, that it prefers coal seam gas be developed
By Leith van Onselen So it’s official. As reported by Houses & Holes earlier this morning, the new Federal Government “has backed fast, practical trade deals with individual countries, including China, in an apparent shift away from the last government’s efforts to win comprehensive international agreements”. The move towards so-called “free trade agreements” (FTAs) –
The last few weeks have not been kind to Australia’s reputation for transparency, rule of law and democratic process. We’ve had the yet to be formally investigated RBA scandal and the as yet formally ivestigated Leighton scandal. Both have led to the yet to be formally investigated ASIC missing-in-action scandal. Meanwhile, the Government has said
The Australian Industry Group’s three PMIs are all bouncing sharply. Last week we saw the manufacturing (up 5 points to 51.7) and services (up 8 points to 47) PMIs jump. Today it’s the Performance of Construction Index (PCI) which has bounced, up 3.9 points to 47.6. Two of the indexes obviously remain in recession but the
By Leith van Onselen During last week’s break, I deliberately attempted to avoid the news in order to give myself a mental break. However, while sitting in a cafe reading about the Hawks AFL Grand Final victory, I came across the below article quoting the ALP Federal Leadership candidate, Bill Shorten’s, view that Australia’s immigration
The AFR has a good story today on the now spectacularly failed process of using lawyers to investigate corruption allegations: …the less obvious common thread is that both Leighton and the RBA had called in highly paid lawyers to investigate rumours of kickbacks prior to the scandals becoming public, but the advisers apparently waved them
The AFR has story about the concern that rising long bond yields will hit the Budget: Foreign investor demand for Australian government debt fell at Wednesday’s bond auction with the number of bids per offer around half of what it was earlier in the year, according to Treasury bond tender documents. The drop in demand