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.
From Westpac and the Melbourne Institute this morning: The Leading Index continues to show lacklustre, sub-trend growth momentum in the Australian economy. Data updates for the December quarter reveal a markedly weaker picture through late last year with the annualised growth rate in the Leading Index now seen dropping to just 0.7% in November. Excluding the 2008- 09 downturn, that
The Westpac-Melbourne Institute Consumer Sentiment survey was released today (find full release below) and showed wage growth expectations had slowed, although more expected a rise in wages: The results show a significant upgrade compared to September last year although this was mostly a shift from expecting base wages and salaries to be unchanged or lower
From Reuters (h/t The Lorax) comes the news that no Australian should welcome: BHP Billiton (BHP.AX), the world’s biggest miner, said it was seeing signs of “flattening” iron ore demand from China, though for now it was pushing ahead with ambitious plans to expand production. Rival Rio Tinto (RIO.AX) said it too was sticking with plans to
On the back of the recent RBA research into credit/debit card and ATM cash usage, comes this “Consumer Credit Expectations Survey” from Dun and Bradstreet: Families and low income earners are increasingly struggling to meet their financial obligations, relying more on credit to pay the bills in the coming months. ….41 per cent of Australian
Recently, I took the liberty of writing a few articles to provide some sectoral macroeconomic analysis of the Australian economy. I did this because I thought it was important to push back on what I perceived as a growing divide between what Australians are being told about the economy and what is actually transpiring. Although
Find below a new analysis of the effect of the mining boom on jobs in Queensland by The Australia Institute. This is an interesting take on the net effect of the mining boom on the labour market. It is brief and readable and asserts, using the example of modeling around the QLD “China First” mine,
As you may have noticed I’ve taken an eye off Europe for a short while in order to provide some macro analysis on what is happening in the Australian economy. At present there is a growing gap in the economic conversation in Australia between what is actually happening and the rhetoric…. This post is a
By Leith van Onselen The Reserve Bank of Australia (RBA) yesterday released the March quarter 2012 Bulletin, which contains a paper entitled The Distribution of Household Wealth in Australia: Evidence from the 2010 HILDA Survey. According to the abstract: This article uses the Household, Income and Labour Dynamics in Australia (HILDA) Survey to analyse the
By Leith van Onselen Recent macroeconomic data coming out of Victoria has been poor. Since house prices peaked in the June quarter of 2010, Victorian economic growth, as measured by state final demand, has severely underperformed the national average, growing by only 1.8% in real terms since June 2010 – less than population growth: It’s
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By Leith van Onselen The Australian Bureau of Statistics (ABS) this morning released the Lending Finance data for January, which registered a nice bounce in the value of personal and lease financing commitments, although commercial financing commitments registered a small fall: In seasonally adjusted terms, the value of personal finance commitments rose 4.3% in January,
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released new motor vehicle sales data for the month of February: On a seasonally adjusted basis, new motor vehicle sales were flat in the month to be 1.7% higher over the year. The result beat analysts’ expectations, who had tipped that new car
By Leith van Onselen Yesterday, the Australian Bureau of Statistics (ABS) released Mineral & Petroleum Exploration data for the December half/quarter and it’s boom boom time in the resources sector! Nationally, expenditure on minerals exploration hit an all-time high of $2,015 million in the December half, with petroleum exploration expenditure also rising to $1,677 million;
It’s time to get on my high horse again about the Australian economy and what is not being done by policy makers and the RBA. I live in the Hunter, having worked until recently as the Treasurer of the dominant Financial Institution in the region, in addition to spending countless hours, days and weeks getting
The Westpac/Melbourne Institute Index of Consumer Sentiment was down by 5% in March. This is from a high of 101.1 in February and at a similar level to the October survey before the two rate cuts by the RBA. So it seems, in the short term at least, that lowering rates hasn’t done much to
Yes, I’m on holiday this week but wouldn’t you know it that’s always the time your industry enters meltdown! The AFR today has an incredible story about the latest move in the “miners versus the government” debate. Clive Palmer is proposing to establish a Guardian-like trust for Australian media assets. For those that don’t know,
Over the last week or so I have noticed a growing voice of concern over the mining industry and the Australian economy generally. This started with an article from Jessica Irvine which slanted an argument that Australian resources are sovereign wealth and therefore mining companies should be paying a larger proportion of their profits back
The Reserve Bank of Australia (RBA) recently released stats on how we use money, here is Peter Martin’s take in The Age and his blog today: ATM cash withdrawals down 1.3% Internet transfers up 7.5% EFTPOS transactions up 7.5% Debit card transactions up 12% Credit card balances up 0.7% Personal cheques down 5.7% We withdrew cash from ATMs 64.7 million times
Recently the Unconventional Economist noted that Alan Kohler has come around to the MB view of the Australian economy. Now, another grey beard of Australian business commentary has given up on Australian exceptionalism: Ross Gittins. Regular readers will know well the chagrin with which MB has observed the work of Gittins over the past year.
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released trade data for the month of January, and it’s a shocker, with the trade balance moving to a deficit of $673m in January 2012, a turnaround of $1,998m on the surplus in December 2011. The worsening trade balance has been driven solely
It turns out that labouring in the wilderness may not be fruitless after all. The AFR this morning reports that the government is looking at some new tax initiatives aimed at addressing Dutch disease: Treasurer Wayne Swan is facing another battle with the mining industry as the government considers scrapping lucrative tax benefits to fund
By Leith van Onselen Last week, Australia’s unofficial provider of labour force data, Roy Morgan Research, released its employment figures for February, whereby it estimated that 9.7% of Australians were unemployed, down 0.6% from January 2012. As explained last month, Roy Morgan Research measures employment differently from the Australian Bureau of Statistics (ABS), which is
Late yesterday Roy Morgan released its weekly consumer confidence numbers, showing another small drop on the week, enough to return the index practically to where it was before the November and December rate cuts: Consumer Confidence is at 110.3pts (down 3.2pts in a week), according to the Roy Morgan Consumer Confidence Rating conducted last weekend
By Leith van Onselen As Houses & Holes reported earlier, the Australian Bureau of Statistics (ABS) released the labour force data for February this morning. In seasonally adjusted terms, total employment decreased 15,400 (0.1%) to 11,444,000, with all of the losses relating to part-time employment (see below chart). The result disappointed economists, who had expected the
ABS Labour Force data is out and shows a reversal of the January bounce, with a loss of 15,400 jobs and a small rise in the unemployment rate to 5.2% : Trend Employed persons (‘000) 11 443.6 11 444.6 1.1 0.1 % Unemployed persons (‘000) 626.8 625.0 -1.7 4.5 % Unemployment rate (%) 5.2 5.2
An hour out from February Labour Force figures and I’ve discovered I forgot to post the DEEWR Skilled Vacancy report. It showed a small rise in seasonally adjusted terms: Seasonally Adjusted Monthly Change Increased by 1.9% to 86.0 (Jan 2006 = 100) Increased in all eight occupational groups Strongest rises recorded for Machinery Operators and
Back in April last year, when the national budget was fresh to the presses, I made a few comments about what I perceived at the time was a misunderstanding by Treasury boffins as to what exactly was happenning in the Australian economy: The government seems to have done a fairly good job of predicting most of the
After yesterday’s hoopla over the December 2011 GDP figures, where I also studied the per capita growth rates, Scotty Barber at Reuters produced this chart of year on year real GDP growth since 1960: For those unsure about the trend, you see that orange line? That’s the average trend growth rate. Take note of the
I have confessed before that my judgements about China are largely second hand. That is, they are based upon the interpretations of others. Sure, some of those others are very well placed but this circumstance still makes me very uncomfortable. In other areas I consider myself to have expertise – the US and Australian economies,
