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.
By Leith van Onselen It seems the obligatory “Labor Black Hole” that many were expecting after the Coalition took office has gone AWOL, with the underlying cash deficit coming in better than expected at $18.8 billion in the year ended 30 June 2013, versus the May forecast of $19.4 billion. Of course, the slightly better
By Leith van Onselen Citibank has come out today forecasting an end to rate cuts, and rate increases from this time next year, due to the recent acceleration of house prices: “In Australia, we foresee policy stability from the RBA, which is now hamstrung by rising house prices and a rising AUD,” the bank’s
By Leith van Onselen JP Morgan has released an optimistic report today arguing that the unwinding of Australia’s mining investment boom will weigh on growth over the the next two years, but that Australia will easily avoid a recession. According to JP Morgan, nimble policy making, exchange rate flexibility, and growth in commodity exports will
By Leith van Onselen NAB has released some interesting research today arguing that around one-third of Australian businesses are hurting from the recent depreciation of the Australian dollar, which has raised input costs for some domestic industries that are in no position to pass them on. Industries most affected are wholesale, manufacturing, retail and mining.
By Leith van Onselen Commsec has released a note summarising the quarterly financial accounts released today by the ABS, which showed that net household financial wealth per capita fell from $76,748 to $75,509 in the June quarter, although it was up by 12.4% over the past year (see next chart). According to Commsec, households held
Prime Minister Tony Abbott was asked this morning if he thought Australia had a housing bubble. He answered: ‘‘I don’t think any one should rush to the conclusion that there is too much exuberance in our economy at this time,’’ he said. ‘‘If anything, we could see a little more exuberance in many sectors of
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released the Australian Demographic Statistics for the March quarter of 2013. According to the ABS, Australia’s population grew by 1.8% in the year to March 2013, slightly below the rate recorded in the year to December 2012, but well above the 30-year average of
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released job vacancies data for the August quarter, which revealed a seasonally adjusted bounce in job vacancies, driven almost exclusively by New South Wales: According to the ABS, total job vacancies rose by a seasonally adjusted 3.1% over the quarter, with private sector vacancies
By Leith van Onselen The dichotomy between the residential and commercial property markets could not be more stark. Whereas residential property is experiencing another bull run, with prices rising and rental vacancies remaining low (albeit a little higher than last year), commercial property vacancies are shooting-up, with vacancy rates hitting levels in excess of the
By Leith van Onselen David Uren has published an interesting article today in The Australian making a solid case for cutting company taxes in exchange for raising the GST. According to Uren, smaller trade exposed economies are better served by applying low taxes on company profits, since global corporations will tend to locate themselves and
By Leith van Onselen The Productivity Commission (PC) has released a new report analysing the sources of growth in income in Australia and the effects of structural change (read the mining boom) on the distribution of income between labour and capital. The report reveals that labour’s share of income fell by around 4% of total
The RBA has fired off a round of hand-wringing and lettuce leaf waving over SMSF leverage. From the AFR: …the last eight years a perfect storm of rule changes and financial upheaval triggered a mass exodus from large super funds. A change in the regulations to enable super fund members to select the manager of
Two diametrically opposite views have been expressed on the prospect for consumer spending in the past two days. Yesterday the Kouk persisted with his hyper-bullishness: Most of the preconditions are in place for a strong bounce in consumer demand. Consumer spending is shaping up to be particularly strong in 2014, which is a vital element
By Leith van Onselen Australia’s telecommunications industry, which employs nearly 200,000 Australians, is about to get a bit smaller, with Telstra this afternoon announcing that its 15,000 strong Operations division will be cut by 1,100 (~7%) by June 2014. According to Telstra’s chief operations officer, Brendon Riley, around half the cuts will come from fixed
The DEEWR job ads series is out for September and resumed falls, down 1% for the month. DEEWR warns again that: Please note, last month the Internet Vacancy Index (IVI) series was affected by MyCareer’s move to free job advertising from 1 July. This had a noticeable impact on the series in July 2013, and
Terry McCrann has a ripping commentary today on the NBN: Figures released by new communications minister Malcolm Turnbull yesterday showed that Labor’s NBN was a gold-plated disaster, getting progressively more disastrous. …Under NBNCo’s initial corporate plan in 2010, on which all the extravagant claims about the NBN – and the commitment to spend $40 billion,
For a party so horrified by debt, the Abbott team is really doing its utmost to grow it as fast as possible. From The Australian: PROTEST groups that stymie major infrastructure projects will be targeted as the Coalition seeks to speed up an $11.5 billion roads program and fight off fears of an economic slowdown.
Find below the latest quarterly Hudson Hiring Intentions survey which shows ongoing labour market weakness. KEY FINDINGS Hiring intentions have hit the lowest level since Q3 2009, down 1.6pp to 20.8% Number of employers looking to decrease headcount dropped 0.4pp vs last quarter Information Technology has the highest level of intentions to hire of all
The Roy Morgan weekly consumer confidence number is out and boom! The weekly Roy Morgan Consumer Confidence Rating has risen to 124.1 (up 1.2pts in a week since September 14/15, 2013 – the highest since January 8/9, 2011). The rise in Consumer Confidence is driven by an increase in confidence about Australians’ personal financial situations
Our Malcolm is on the job at the NBN. From BS: Communications Minister Malcolm Turnbull has released an “interim statement of expectations” to NBN Co, setting new targets and asking it to keep rolling out fibre to the premises until a review is complete. “The interim statement instructs NBN Co to continue to roll out
From Goldman today comes a useful and sobering update on the progress in bridging the mining investment cliff: Taking a step back from a handful of flagship road infrastructure projects, ABS time series data on engineering construction work done presents the challenge for Australian policy-makers from slightly different perspective. These data highlight that surging engineering
By Leith van Onselen Last week, the Premier of Western Australia, Colin Barnett, began lobbying the Federal Government to increase the Goods and Services Tax (GST), which he argued was essential to ensure that state government revenues were sufficient to be able to afford to cover basic services. From the Brisbane Times: ”I think the
By Leith van Onselen Those of you undertaking driving trips these school holidays will be relieved to know that petrol prices are headed lower, with the 3.9 cent per litre fall in the average price of unleaded fuel experienced in the week to 22 September likely to be followed-up with similar falls over the next
By Leith van Onselen The Australasian Institute of Mining and Metallurgy (AusIMM) has today released research showing that unemployment amongst professionals in the Australian minerals industry (including geoscientists and engineers) has increased from less than 2% to almost 11% in just 12 months. The survey, which was conducted across the Institute’s 13 500 members, showed:
From the SMH: The board of NBN Co has offered to resign en masse, falling on their sword amid suggestions they do not have the confidence of the incoming government. The chairwoman Siobhan McKenna submitted her resignation to the Minister for Communications, Malcolm Turnbull, along with the rest of the board. Former Telstra boss Ziggy
By Leith van Onselen Business Day’s Michael Pascoe has written an excellent article this afternoon arguing that the states must unite in order to drive GST reform: Barnett called for leadership on the GST issue from Tony Abbott, but it’s not the federal government that needs tax reform, let alone the political cost of broken
By Leith van Onselen Commsec has today released its Bank Business Sales Indicator (BSI), which tracks the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities, and covers spending broadly across the economy rather than just retail sales, including spending on automobiles, personal services and airlines. According to Commsec, the BSI
By Leith van Onselen The new Coalition Government has today ruled out making any changes to the GST, contravening the wishes of the Western Australian and ACT leaders who have called for an increase in the tax. From the AFR: “There will be no change to the GST, full stop, end of story,” a spokesman
By Leith van Onselen Commsec has released an interesting report summarising the quarterly employment report by the Australian Bureau of Statistics (ABS), which examines jobs growth by industry over the three months to August 2013. According to Commsec, total employment fell by a non-seasonally adjusted 26,500 workers over the August quarter – the biggest quarterly
By Leith van Onselen Following yesterday’s downgrading of Western Australia’s credit rating by Standard and Poor’s, the state government has announced that it will embark on a program of asset sales in a bid to shore-up the state’s finances and restore its credit rating back to AAA. From the Western Australian: Port assets are being
