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.
Back in June I mentioned that the new Newman government of Queensland appeared to be implementing a substantial austerity program in order to re-balance the Queensland budget. As I stated in the previous post, one of the major issues with the government’s budget is the highly optimistic forecasts used by the Queensland Treasury under the
There’s some vague rhetoric and halcyon days analysis of Tony Abbott’s great China gaff today. As usual, the tribal nature of the Australian media is trumping more hard-nosed analysis, with both The Australian and the AFR going very light indeed on Abbott’s extraordinary declaration that Chinese SOE investment is not welcome in Australia. The AFR, via
From the SMH: Australia needs to rethink its sales pitch to Asian tourists who believe a holiday here is too expensive because of the way is marketed in Asia, the boss of Malaysia’s budget airline, AirAsia X, says. Giving an outsider’s perspective of Australia’s latest ad campaign, Azran Osman-Rani said Australia’s tourism industry needs to be
By Leith van Onselen As summarised earlier by Houses and Holes, the Australian Bureau of Statistics (ABS) this morning released the Consumer Price Index (CPI) data for the March quarter 0f 2012, which showed an absence of inflationary pressures in the Australian economy: According to the ABS, headline CPI rose by only 0.5% in the
Told ya. CPI is out and it’s weak, 0.5% on the quarter and 1.2% on the year. The trimmed mean, the weighted median are all weak. Looks like most of what inflation there is in retail, suggesting the recent rate cut induced bounce has delivered a little short term pricing power, which will fade. Look
So, DEEWR job ads hit a new seasonally adjusted (down 6.6%) and trend (down 1.8%) low in July: The Internet Vacancy Index (IVI) decreased by 1.8% in June 2012 in trend terms. Over the year, the IVI has fallen by 12.6% and is now 45.3% below the March 2008 peak. Despite the national decline over
The Conference Board Leading Indicators for Australia in May rose 0.4 and as well in the Coincident Index: But are going nowhere fast!
From Roy Morgan today: Consumer Confidence is at 108.1pts (down 1pt in a week) according to the Roy Morgan Consumer Confidence Rating conducted last weekend on July 21/22, 2012. Consumer Confidence is now 0.1pts lower than it was a year ago, July 23/24, 2011 — 108.2. The fall in this week’s Consumer Confidence has been
Find below Glenn Stevens new speech on why we are different: The Lucky Country! One wonders he hasn’t been reading… Thank you for coming today to support the Anika Foundation. Before I proceed I want also to thank Macquarie Bank for their support, once again, in providing today’s venue and sustenance, and the Australian Business
Find below the Q2 NAB Manufacturing Index. Here’s the summary: NAB’s Manufacturing Activity Index recorded further declines in the June quarter, down to -0.6 points (from -0.4 points in March). This implies further declines in manufacturing activity for this period – around -0.8% qoq. • ABS data for Industry Gross Value Added has recently been revised
Find below a couple of CPI previews from NAB and Westpac. They agree on a relatively benign June QTR result of 0.7% headline and lower for core. My own view is lower still but I still don’t agree that the CPI is the key release in the next few weeks. Barring an out of the
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released Producer Price Index (PPI) data for the June quarter, which has registered a 0.5% quarterly rise in final (stage 3) prices and an increase of only 1.1% over the year: The 0.5% rise in final (stage 3) prices was driven primarily by
By Leith van Onselen Fairfax’s Adele Ferguson today published an important article on the growing number of collapses in the building industry, where at least two companies a day are going under, mostly in New South Wales and Victoria: The latest statistics on liquidations and voluntary administrations show that since January 1 more than 363
AAP appears to have led off another of those wondrous moments in the Australian business media when a bad economic statistic is somehow alchemically transmogrified into gold. Today it is the ABS quarterly International Trade Prices which showed a 2.4% rise in import prices and a 1% rise in exports: The magic occurs when you
Westpac has an interesting note out that is forecasting a big bounce in Q2 CPI to 0.7% on rebounding food prices. Still not overly high in the scheme of things but a decent rebound. My own view is we will see weaker but I don’t think the CPI is all that relevant this quarter anyway.
It always pays to be an interest in Australia. From the The Oz: The online shopping habits of Australians will be tracked for the first time by the Australian Bureau of Statistics. The Gillard government today announced $2.1 million over four years for the ABS to get a better picture of online spending habits and
Today’s June quarter NAB survey shows just how ridiculous the RBA Minutes were earlier this week. Here are the vitals: Confidence down, conditions down, trading down, profitability down, employment down, capacity utilisation down. Labour prices, exports, forward orders were flat at poor levels. Capex was up a smidge. Business conditions are falling in every sector
The headline story today at the AFR is a neat investigative report into union power brokers shifting towards the return of Kevin Rudd: The top leaders of the trade union movement discussed the prospect of Kevin Rudd returning to the leadership of the Labor Party as they prepared a battle plan against Coalition leader Tony Abbott.
Two stories this afternoon at the AFR shows how happily populist our politics is, not to mention how well Nanny State politics goes down with the battlers. Both are stories about Coalition intervention into government payments. The first is about a plan, or at least an intention, by the Coalition to police carbon tax rebates
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released building activity data for the March quarter, the highlight of which is the sharp contraction in dwelling completions. According to the ABS, there were only 32,557 (seasonally-adjusted) dwellings completed in the March quarter, which is a decade low (see below chart). The
The Westpac/Melbourne Institute Leading Index for May is out and accelerated from its recent lows: The annualised growth rate of the Westpac–Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was 1.6% in May 2012, below its long term trend of 2.6%. The annualised growth rate of the Coincident
Roy Morgan released their Consumer Confidence rating for the weekend of July 14/15, 2012, which at 109.1 points is only 1.1pts higher than it was a year ago: According to Roy Morgan: The fall in this week’s Consumer Confidence has been driven mainly by less confidence about family financial situations over the next year and
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released new motor vehicle sales for the month of June, which registered a seasonally adjusted -0.6% fall over the month, led by Queensland, Western Australia and the Northern territory: Despite the monthly dip, the below charts show that the trend in new car sales
By Leith van Onselen Yesterday, WAM Capital’s Matthew Kidman wrote a article in Business Day arguing that Australia must increase population growth, in particular immigration, or it risks destroying the economy. Let’s take a look. THE first policy a new federal government should dust off when elected next year is ”Big Australia”… The reality is
By Leith van Onselen The ABS this morning released Lending Finance data for the month of May, which delivered a mixed bag: In seasonally-adjusted terms, personal finance rose by 0.4%, but is essentially flat over the year: Commercial finance fell sharply (-12%) in May, reversing last month’s strong rise, and remains -5.7% lower over the
Courtesy of Mark the Graph. ASIC has released the data for May on companies entering into external administration. The headline series is pretty noisy. So I apply some herbs and seasonal adjustment to look at the underlying trends. The good news is that with the exception of Victoria and Queensland the number of new insovencies per
By David Llewellyn-Smith Yesterday Bloomberg ran an interesting article by Edward Glaeser, Harvard professor and land-use/city specialist. He used Australia as shining example of why mining is bad for long term prosperity. America became great because it transformed its vast natural resources — Iowa farmland, Mesabi iron, Texas crude — into human capital, equipped with skills to
Courtesy of Mark the Graph. The gendered story of the post GFC labour market is interesting. The standard narrative is that men benefited more from the boom before the GFC, but were more impacted by the GFC. Since the GFC, it appears that men have benefited from the recovery more than women. Right at the
By Leith van Onselen As reported by Houses & Holes earlier today, the Australian Bureau of Statistics (ABS) has released labour force data for the month of June, which paints a deteriorating picture of the Australian jobs market. While the headline unemployment rate rose by only 0.1% to 5.2%, it is the internals of the
June unemployment is out and is not great. The headline number only rose 10bps to 5.2% but 33.5k full time jobs were lost with a minimal offset in 6.6k gain for part time. The participation rate fell 30bps to 65.2, preventing a larger rise in the headline number. Month to month is volatile of course
