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.


The two sides of the consumer coin

By Leith van Onselen Last week’s national accounts for the June quarter, released by the Australian Bureau of Statistics (ABS), revealed that household financial consumption expenditure (HFCE) was a key driver of Australian GDP growth, increasing by 0.4% over the June quarter and contributing 0.2% of the growth in GDP. The result seemed to confound


The RBA’s nominal recession

Please find below an interesting (alternative) take on the economy and monetary policy from Skeptikoi: Most of the recent media’s focus on the Reserve Bank of Australia (RBA) has been on the withering character assessment of Kevin Rudd from RBA board member and former Woolworths CEO, Roger Corbett. Which is a shame, because the focus


HSBC, Commsec summon the confidence fairy

By Leith van Onselen Both HSBC and Commsec have come out with notes today predicting a boost to confidence and the economy should tomorrow’s election culminate in a clear mandate for Government. First, HSBC: Overall, the two major parties are not announcing wholesale changes to the economic or regulatory landscape in the near-term. As such,


Bill Evans dissects the Australian economy

By Leith van Onselen Above is an interesting extended interview with Westpac’s chief economist, Bill Evans, aired last night on ABC’s The Business. In the interview, Evans provides his views on the post-mining boom economy, including his outlook for interest rates, the currency, and house prices. Key points include: June’s capital expenditure (capex) data was


The Abbott boom cometh!

Or perhaps it is here, with wall-to-wall endorsements by national paper editorials today. But that’s not what this post is about. Rather, it is about the economy and the coming Abbott triggered boom! The Australian today reckons the post mining boom adjustment is a figment of Kevin Rudd’s imagination: THE next federal government is poised


Empty shops spread

By Leith van Onselen Back in July, I argued that Australia’s retailers needed to become accustomed to a low growth future as the twin credit and mining booms unwind: …real retail sales growth per capita has essentially flat-lined since December 2007, following two decades of strong growth (see next chart). There are strong reasons to


Industrial disputes fall away

The ABS has released its quarterly report into industrial disputes today and the chart is quite a surprise: Check out the two little peaks in the bottom right hand corner. That’s your mining boom. Now compare that with 1980s! It has to be said that Labor’s Wages Accord really did kill industrial disputation and the


Australian trade balance shifted into deficit in July

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released trade data for the month of July, with Australia recording a seasonally-adjusted trade deficit of $765 million. The result disappointed analysts’ expectations, which had expected a trade surplus of $100 million. It was the first monthly trade deficit in three months and followed


Long-term immigration continues to boom

By Leith van Onselen The Australian Bureau of Statistics (ABS) yesterday released visitor arrivals and departures data for the month of July, which again revealed surging net temporary migration into Australia, but falling net permanent migration. In the year to July 2013, there were 677,980 permanent and long-term arrivals into Australia (a new record), partly


Australia on FIRE once again

By Leith van Onselen The Australian economy is a weird beast. According to the Australian Industry Group (AIG), both the manufacturing and services sectors have been contracting for an extended period of time, signalling broad-based weakness across the domestic economy. And yet the FIRE sectors of the Australian economy – Finance, Insurance  and Rental, Hiring


Australian manufacturing world’s worst

By Leith van Onselen We all know Australia’s manufacturing sector is in recession, with the Australian Industry Group’s (AIG) performance of manufacturing index (PMI) this month registering its 26th consecutive month of contraction. Now the below chart, which comes from David Scutt via Twitter, shows just how bad the manufacturing industry really is, with Australian


NAB: Australian GDP “flatters” reality

From NAB this afternoon comes some more detail of the GDP release: Economy grows 0.6% in Q2; headline flatters the detail. Australia’s growth continued, at a 0.6%/2.6% pace in Q2 after 0.5%/2.5% in Q1 Headline growth a shade better than expected (consensus revised down from 0.6% to 0.5% as of yesterday and NAB’s 0.4% forecast)


WEF: Australia a bureaucratic nightmare!

I’m paraphrasing of course but the World Economic Forum’s annual survey of global competitiveness makes it plain that Australia is performing badly on the red tape front: This edition marks the first time that Australia (21st, down one) exits the top 20 and is overtaken by New Zealand (18th), which jumps five places. Australia delivers


Australian GDP in detail

By Leith van Onselen The Australian Bureau of Statistics (ABS) today released the national accounts for the June quarter, which registered a 0.6% increase in real GDP over the quarter and a 2.6% rise over the year. The result met market expectations. On a per capita basis, however, real GDP increased by only 0.1% and


Mining, banks save Q2 GDP (updated)

The ABS has released June quarter National Accounts and it’s come in slightly above consensus at 0.6% and 2.6% on the year. Widespread weakness in household and government expenditure has been offset by a spike in Gross Fixed Capital Formation Private, that would be mining investment: JUNE KEY FIGURES % change Mar qtr 13 to


Consumer confidence enjoys pre-election bounce

By Leith van Onselen This time last month, the Roy Morgan Research (RMR) consumer confidence index had fallen sharply, following the Treasurer Chris Bowen’s announcement of a material deterioration in Federal Budget finances from a projected $18 billion deficit to over $30 billion. Since that time, consumer confidence has surged according to RMR, rising 7.5%


David Murray delivers another sermon on debt

By Leith van Onselen Former Future Fund chairman and CBA CEO David Murray has this afternoon delivered the political elite another post-GFC caning on the sidelines of the Association of Mining and Exploration Companies convention in Perth, warning politicians not to engage in “debt-fuelled vote buying” and instead urging them to act to protect Australia’s “weak”


Commodity prices bounced back in August

By Leith van Onselen The Reserve Bank of Australia last night released its commodity price index for the month of August, which registered an increase in commodity prices in both Australian Dollar and special drawing rights (SDR) terms (effectively a measure of commodity prices based on a broad range of currencies) on the back of


Government to save June QTR GDP?

Today’s balance of payment figures have raised the possibility of a negative GDP print in tomorrow’s national accounts. From Westpac: Q2 net exports: flat Net exports were neutral for GDP growth in the June quarter. That was weaker than expected (market median 0.1ppt, Westpac 0.2ppts) Exports provided the downside surprise, rising by 1.3% (Westpac f/c


Net exports to detract from GDP?

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released Balance of Payments data for the June quarter, which revealed a worsening of the trade deficit and suggested that net exports would detract 0.04% from tomorrow’s quarterly GDP print (my emphasis): Latest Australian Bureau of Statistics (ABS) figures show that in seasonally adjusted,


Retail sales disappoint again

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released retail sales figures for the month of July, which registered a 0.1% seasonally-adjusted increase in sales over the month versus an expected 0.4% rise. Annual sales growth clocked in at a meagre 1.9% (2.8% trend): Monthly retail sales fell in three states


Will the election boost the economy?

By Leith van Onselen ABC’s The Business ran another interesting segment last night looking at whether the economy is likely to regain its mojo once the Federal Election is decided this weekend. The key points from the segment are: The manufacturing is in recession, acording to NAB’s chief economist Alan Oster, with capacity utilisation at


D&B survey confirms recessionary conditions

From the monthly Dunn and Bradstreet Business Expectations Survey: Business expectations for the final quarter of the year have fallen flat in a sign that the economy’s long-awaited revival will not occur in 2013. The outlook for the remainder of the year suggests that businesses do not view the conclusion of this month’s federal election


Roy Morgan unemployment still weak

Roy Morgan unemployment for August is out and shows still very weak labour market: In August 2013 an estimated 1.25 million Australians (10.1% of the workforce) were unemployed. This is down 16,000 (0.0%) from last month. The Australian workforce* was 12,377,000 (down 186,000) comprising 7,440,000 full-time workers (up 26,000), 3,686,000 part-time workers (down 196,000) and