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.


Current account blows out

The ABS has released the March quarter current account balance and the blowout has begun with a current account deficit (CAD) of -14892 million recorded. That was slightly worse than consensus at -14850. This subtracted 0.5 points of GDP in the quarter: Here are the internals: The big turnaround is obviously in exports,  with imports


PSI retraces some

The AIG Performance of Services (PSI) for May is out and shows a decent rebound, though still languishing well into recession territory: The latest seasonally adjusted Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) shows that the services sector contracted again in May, but at a slower pace than in April. ■ The


Bogans still fleeing in April

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released overseas short-term arrivals and departures figures for April, which contained mixed fortunes for the tourism industry. While short-term resident departures decreased by -0.3% 0ver the month in seasonally adjusted terms – partly driven by a reduction in (bogan) departures to South East


Profits down, inventories up

The ABS this morning released its Company Operating Profits survey for the first quarter and the news wasn’t great, -4% in the first quarter, a slight improvement from the December quarter which saw profits at -6%. Consensus was for -2.5%. The history shows how weak this is: Company profits are a component of GDP so


ANZ job ads tank in May

Aaaand, the good news keeps on rolling with ANZ job ads down 2.4% in May. Although, the good news is the previous month was revised up from -3.1 to -0.8% so the damage is not as bad as first blush. Here is the ANZ’s take: The number of jobs advertised in newspapers and online declined


Terms of trade holding up

There are signs that the iron ore price correction is easing. The price has risen a couple of bucks (blue line) over the past few days since the mooting of a Chinese stimulus, whatever it will be. Also encouraging is that the Chinese steel prices for billet (pink) and rebar (green) have bounced at the


Is Australia the next Spain?

Sigh. They’re onto us all right. From the AFR on Saturday: Credit ratings agency Standard & Poor’s has warned it could cut Australia’s coveted AAA rating if the federal government abandons the budget surplus in response to a global recession triggered by the European debt crisis. …S&P’s director of sovereign ratings, Kyran Curry, said an extended


Manufacturing leaves the building

This morning the ANZ’s morning note said the following: In Australia today, there are no major data releases. Only the manufacturing PMI. In the US, and just about every other country on earth, the manufacturing PMI is one of the top five data releases for the month. Just sayin’. And so, on to the manufacturing


QLD’s public service jobs carnage

Yesterday I noticed a story in the AFR about the coming cuts to the South Australian government, obviously on the related news of the state’s downgrade: South Australia’s public sector has come under the knife, with the state’s treasurer axing 1000 jobs over the next three years and delaying a number of infrastructure projects as


Roy Morgan unemployment tumbles

From Roy Morgan late yesterday: In May 2012 according to Roy Morgan: Unemployment was 8.2% (down 1.1% since April 2012) — an estimated 997,000 Australians were unemployed and looking for work. A further 9% of the workforce* (up 0.8%) were working part-time looking for more work (underemployed) — 1,107,000 Australians. In total 17.2% (down 0.3%)


S&P strips SA’s AAA

Late today S&P announced that: Long-Term Rating On South Australia Lowered To ‘AA+’ On Budgetary Pressures, ‘A-1+’ Short-Term Rating Affirmed; Outlook Remains Negative MELBOURNE (Standard & Poor’s) May 31, 2012–Standard & Poor’s Ratings Services said today that it had lowered its long-term rating to ‘AA+’ from ‘AAA’, on the state of South Australia and the


Gillard talks but can’t walk

From the SMH: Julia Gillard told a dinner hosted by the council last night that Australians deserved to benefit from the mining boom – and that the nation’s resources belonged to its people and not the government or mining companies. ”And here’s the rub. You don’t own the minerals. I don’t own the minerals. Governments


Housing credit subdued in April

By Leith van Onselen The Reserve Bank of Australia (RBA) today released credit aggregates data for the month of April, which revealed a continuation of the soft credit conditions prevalent over the past year. According to the RBA: Total credit provided to the private sector by financial intermediaries rose by 0.4 per cent over April


Dwelling approvals plumb new lows

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released the Building Approvals data for the month of April. At the national level, the number of dwelling approvals fell by a seasonally adjusted -8.7%% to 10,330, driven predominantly by a -11.1% decrease in approvals for private sector houses. The result significantly undershot


Private capex bonanza!

So, private capex is out and kapow! Yes, it’s an extravaganza of investment with the March quarter delivering 6.1% growth against consensus of 4%. Year on year it is up 28.3%. That’s all to the good, but I was more interested to see if capex projections had at all been reigned in in the March


We are different, dammit!

My favourite economic Mandarin, Martin Parkinson (AKA Parko), Secretary of the Treasury, is on the hill today beating the exceptionalism drum. From the AFR: Treasury secretary Martin Parkinson said Australia would have the capacity to respond to any potential renewed global credit crisis or recession triggered by Europe, including returning to larger deficits. “I disagree


DJ’s offers hope

DJ’s released its Q312 trading update this morning and said the following: 3Q12 Total Sales of $399.8 million – down 2.9% on 3Q11 3Q12 LFL Sales declined by 3.1% versus 3Q11 Rate of sales decline stabilised and is tracking broadly in line with 2Q12 The Company has made good progress in clearing excess inventory Best


Australian competitiveness slumps

Overnight the IMD released it’s 2012 World Competitiveness Rankings and the news for Australia was not so good declining six places in a year from number 9 to number 15: The AFR has some decent coverage of where we slipped: The major driver of the decline were big drops in Australia’s performance in labour markets


Two speed retail

By Leith van Onselen As noted by Houses and Holes earlier today, Australian retail sales fell -0.2% in the month of April, which was below consensus estimates of a 0.2% rise. For me, the most interesting aspect of the Australian Bureau of Statistics (ABS) release was the two-speed nature of the result. First, there was


Retail sales fall in April

April retail sales are in and fell 0.2% month on month, well below consensus of a 0.2% rise. March was revised up 0.2% to 1.1%. The internals were uniformly weak with only food and eating out eking out growth: So, more evidence of an April freeze in the household sector, with some hope apparent in


China to build apartments on moon!

By David Llewellyn-Smith From me this morning: China yesterday unveiled a $400 trillion yuan ($60 trillion) stimulus package that aims to put empty apartments on the moon. Dubbed a “maxi-me” of the stimulus package unveiled in 2008 to combat the initial hit from the global financial crisis, the program includes dead end infrastructure and ghost


Roy Morgan consumer confidence steady

From Roy Morgan today: Consumer Confidence is at 108.3pts (up 0.1pts in a week) according to the Roy Morgan Consumer Confidence Rating conducted last weekend (May 26/27, 2012). Consumer Confidence is now 4.4pts lower than a year ago May 28/29, 2011 (112.7). Australians have gained a little confidence over the past week about their personal


New home sales rise from canvas

HIA-JELDWEN new home sales for April are out today and show a small bounce from March’s crater low. The internals are not at terribly encouraging, surging in Victoria on disappearing stimulus and where more dwellings are least needed: The HIA – JELD-WEN New Home Sales report, based on a survey of Australia’s 100 largest builders, showed


After the Party

Find below an excellent new report by the Labor aligned think tank, Per Capita (h/t Mav). This is the clearest description I’ve yet read of the effects upon the national Budget of the mining boom and how we pissed much of it up against a wall. Thouroughly recommended reading and not notably partisan. After the


A post-Budget bounce for Gillard?

Courtesy of Mark the Graph. Today’s Australian has the latest Newspoll results. Perhaps we are seeing a post budget bounce.We will start with the primary vote. The two-party preferred prediction. Are you satisfied or dissatisfied with the way Julia Gillard is doing her job as Prime Minister? Are you satisfied or dissatisfied with the way Tony


We are ill prepared for a shock

I have intermittently tracked the economic narrative emanating from our economic leadership in Canberra and Martin Place. Looking for sense in the transition we face from yesteryear’s credit driven model of economic growth to today’s commodities investment driven growth. At times leaders have made some sense, even if they refused to acknowledge what we were


Current account deficits forever!

Westpac has produced an interesting take on the strength and sustainability of the Australian current account deficit. I’ll make no bones about being a deficit hawk and, as such, find this note a little stale! Indeed, the arguments contained herein seem a bit fair weather to me. They are as follows: In gross terms, Australia


NAB online retail index slows

NAB’s April online retail index for April is out and shows slowing growth: According to the Index, the value of online sales in Australia for the year to April 2012 was $11.1 billion. However, our research shows a clear slowdown in growth over the past year, with year-on-year growth rates declining to 15.5% in April. The Household goods