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.


Attention manufacturing, here’s your hire

Not just manufacturing, actually. There needs to be a new umbrella peak body/lobby group covering all non-resource exporters – manufacturing, tourism and education (maybe primary goods too). That group needs to go head-to-head with the Minerals Council of Australia over the soul of the Australian people and the fear gene of the Australian government. And


Whose GDP is it anyway?

They say what gets measured gets managed, but a measure as nebulous as GDP needs careful interpretation when used as a guide for economic management.  Putting aside the conceptual problems surrounding the use of GDP as a measure of progress, there is still the practical problem of taking estimates of production or expenditure in current


Balance of trade still in surplus

The ABS today released their estimate of the balance of trade in goods and services for July.  The headline data showed that trade surplus inched up a little in both trend and seasonally adjusted terms since June to around $1.8 billion. This is good news. While the monthly release is extremely volatile, the surpluses over


Swannie’s con job

Did you know the Australian government is holding a jobs forum on October 6th? Me neither. Apparently the uptick in unemployment has them so spooked that they feel they need to come out on the front foot and have a confab. I stumbled upon this fact yesterday whilst choking on an appalling quote from Treasurer


Lending finance sees an uptick

The ongoing sense that we’re seeing a bottom (at least temporarily) in credit data, received a boost today with a small bounce in the ABS Lending Finance report for July. The key points are below and show an across the board improvement with the exception of fixed personal finance. The biggest uptick is in business


Chart of the Day: GDP or not GDP

That is the question. Although GDP is rightly condemned as a poor indicator of economic prosperity, it is the number one metric for economic “growth”. And from Leigh Harkness’ blog comes this fascinating chart (and accompanying data source) showing GDP per capita remains at March 2008 nominal levels: And here’s the US version, from Econompic,


Insolvencies rise, Gerry heads west

The dark clouds are reappearing particularly fast over Australia’s private sector after the little rays of sunshine on Tuesday. MacroBusiness readers would be well aware that households are under pressure from high levels of indebtedness and most recently we have seen the rate of arrears climbing sharply in some areas of the country. The other


Flipping the bird at NSW ‘austerity’

From the SMH today comes this story of union action against the O’Farrell government’s plans to limit pay rises: Unions are claiming victory in their campaign against the state government after an angry crowd of about 30,000 marched on State Parliament today. …The crowd of public sector workers, made up mostly of teachers, public servants,


More on labour hoarding

Find below HSBC’s and NAB’s take on today’s jump in unemployment. Both are even handed assessments on the unwinding of labour hoarding but also more sanguine than I am about the immediate trajectory for the jobless rate. Two reasons I can think of for the weakness concentrated in both WA and QLD. First, that’s where


More on unemployment

So, NSW lost 12,000 full time jobs, VIC added 17,000 but that was a give back for last month’s drop of 29,000 so over two months is down 12,000, Qld and SA dropped 2,000 and WA lost 5,000. Here’s a chart of the states unemployment rates: And here is what is about to become a


Unemployment jumps

The ABS August Labour Force report is out and the slide is on, with unemployment jumping in the month to 5.3%. The ABS details are below. More analysis to come… AUGUST KEY POINTS TREND ESTIMATES (MONTHLY CHANGE) Employment increased to 11,439,900. Unemployment increased to 620,300. Unemployment rate steady at 5.1% from a revised July 2011


Extinction is a crisis

Yesterday Deutsche Bank released a new report into Dutch disease and it makes fascinating reading. The report more or less follows the line put forth by the Canberra boffins, that manufacturing has been in long term decline and offers some quite useful charts. The report concludes the following (with comments): Manufacturing is in long-term decline,


Time to refinance?

The question has been legitimately raised, as fixed interest rates fall, is now the right time to re-finance? This week, housing finance results showed a bounce for refinancing, primarily driven by QLD: Interestingly, visual analysis of the nominal levels shows a stall in refinancing, whilst established dwelling lending (i.e buying houses off each other) has also reversed


GDP double takes

Here are some more analyses of today’s National Accounts. The pick in my view is the first by Bill Mitchell: As winter arrived (June 1), the March quarter Australian National Accounts came out and showed that the Australian economy contracted by a staggering 1.2 per cent. With the seasons passing into spring and the warm


A couple of points from the Guv

I really quite enjoyed this morning’s speech from Glenn Stevens. It was lively and candid and offered a couple of points worth noting for monetary policy debates. The first point I want to make is that Stevens has rather subtly ridden to the defense of the RBA board: By the time of the May Board meeting, there


Still interesting times

Here’s a copy of Glenn Stevens speech he is currently delivering in WA: Still Interesting Times Glenn Stevens Governor Address to the Chamber of Commerce and Industry (Western Australia) and the Chamber of Minerals and Energy (Western Australia) Corporate Breakfast Perth – 7 September 2011 It is very good to be with you this morning. In the


Retail pain here to stay

Yesterday’s announcement by the Reserve Bank of Australia (RBA) that the official cash rate would remain on hold provoked a stinging response from the Australian Retailers Association (ARA): The Australian Retailers Association (ARA) says the Reserve Bank of Australia’s (RBA) decision to hold interest rates has left retailers struggling to hold on. The ARA had


The optimistic NSW budget

I spent a bit of time looking through the NSW budget documents overnight. The major announcements are: $8 billion in savings over four years Privatisation of Port Botany to fund roads 5000 public servants to be offered redundancies Increase in coal mining royalties to offset carbon tax First-home buyer stamp duty exemption to be changed to


Stimulus for a recession that never was

Hands up who knew that Australia avoided a technical recession in the aftermath of the GFC? Kevin Rudd certainly got some miles out of it, noting in his farewell speech how proud he was of that fact and the role his government played.  But as usual all is not what it seems.  The Keynesians shouldn’t


Qld drives housing finance bounce

So, we’re having a bit of a bounce in housing finance. Owner occupied was up 1.6% in July and investors 1.9%. Nothing too extravagant but certainly a rising from the floor. To the knees one might say: We’ve recovered much of the territory lost in the first half slump, though as you can see the


Decrease in CAD equals lower GDP

The Australian Bureau of Statistics (ABS) released current account figures for the June 2011 quarter (emphasis added) today: In seasonally adjusted, current price terms, the current account deficit fell $3,696m (33%) to $7,419m in the June quarter 2011. Exports of goods and services increased $5,837m (8%) and imports of goods and services increased $2,985m (4%).


Economic cogs in the mining PR machine

As Houses and Holes pointed out yesterday, the Minerals Council of Australia (MCA) public relations machine is hastily filling the mainstream media vessel with its store of positively framed economic analysis. The latest analysis from the stockpile is a study undertaken by Deloitte Access Economics (DAE) which surveys Australian mining companies about their tax obligations in order


CPI chameleon

The Consumer Price Index (CPI) forms a backbone for economic analysis.  We apply it to a broad range of circumstances to modify nominal dollar values into comparable real dollar terms, and our central bank has relied heavily upon it since mid-1993 when it found practical expression for its statutory objectives for monetary policy in the


Fighting Australia’s “hot money” problem

Tell me the first country that comes to mind when I state the following economics terms. Long running current account deficits, large private sector debt, high household indebtedness, high hidden inflation, falling productivity, falling real incomes, hot money flows, asset bubbles. Greece ? Spain ? Italy ? How about Australia? Last week I posted an


Mining 1, everyone else 0

For a group of pick wielding boof heads mining sure does a hell of a job on its public relations. Such a good job, in fact, it is running rings around the city-slicking bags of fruit who are supposed to understand the services business. What the hell am I talking about? This, from the SMH today:


ANZ job ads point to rising unemployment

ANZ job ads was out earlier today. It continues its recent trend of slowing growth: Total job advertisements on the internet and in newspapers decreased by 0.6% in August. Annual growth in total job advertisements decelerated to 6.1% y/y. • Newspaper job ads fell by 3.0% m/m, while internet job advertising decreased by 0.5% m/m.


Revisiting last year’s forecasts

The economy is a complex beast, and even forecasts based on solid theory and evidence can get the timing wrong.  Here’s just a quick snapshot of some economic forecasts from a year ago to lighten the mood as we head this week into the National Accounts (Wednesday). Bill Evans – Westpac Chief Economist – 3


TD Securities monthly inflation undershoots

I’m not sure that anyone is terribly concerned about the squawking of bullhawks anymore but for those that are you may rest easy for another month as the TD Secrurities Monthly Inflation gauge just dramatically undershot expectations recording outright deflation in August: Here are the details from the release: The TD Securities – Melbourne Institute


Terms of trade stall

Missed this yesterday. From the RBA: Australia’s recent spectacular run of terms of trade rises finally stalled in August. Preliminary estimates for August indicate that the index rose by 0.4 per cent (on a monthly average basis) in SDR terms, after rising by 1.8 per cent in July (revised). The largest contributor to the rise in August