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.


PPI pushes case for rate cut

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released Producer Price Index (PPI) data for the March quarter, which has registered a -0.3% quarterly fall in final (stage 3) prices and an increase of only 1.4% over the year: The -0.3% fall in final (stage 3) prices was driven primarily by


Another look at the Federal Budget

Cross posted with permission from Mark the Graph: Another chart on which it appears that the problems with balancing the Federal Budget are more on the expenditure side than then revenue side when compared with historical levels. Revenue is close to returning to its pre-GFC level of 23 per cent of nominal GDP. If things


Down goes Australia’s Terms-of-Trade

Recent trade data coming out of Australia has not been good. In January, Australia’s trade balance moved to a deficit of -$971m, a whopping turnaround of -$2,229 million from December 2011′s trade balance. And then in February, another deficit of -$480 million was recorded – a result that would have been much worse had the


CPI previews: weak

Find below a couple of CPI previews from Westpac and CBA. Both predict a headline result of 0.5% for the quarter and an annual rate of 2% with an underlying rate in the mid 2%s. I see no reason to gainsay these calculations. Yesterday’s quarterly NAB Survey showed clear disinflationary pressures in the quarter both


Turnbull on Dutch disease

Yesterday Malcolm Turnbull delivered a fascinating speech on the exchange rate and Dutch disease. It’s worth a read on a couple of fronts. First, he uses Max Corden’s recent treatise on the subject to argue the need for an SWF. Just to remind you, the Corden line was to run very large Budget surpluses to


NAB Survey paints an ugly picture

I don’t usually bother with the quarterly NAB Business Survey, not because there is anything wrong with it, there isn’t, but the monthly versions are usually enough. But on a slow afternoon I thought I’d take a look and what I found was not pleasant. In fact, the survey is a complete dog. Despite a


Infrastructure bonanza

Westpac has released an interesting note this morning on the progress of Australia’s infrastructure boom, which continues to set new records in QLD and WA. As in the case of other areas of the economy, it seems Victoria is slighted to carry the brunt of the “adjustment”. Still, this is the stuff of which economic


Smashing disleveraging

From the AFR today comes details of a forthcoming speech by Prime Minister Gillard on why we need Budget cuts and lots of ’em: Prime Minister Julia Gillard will today aggressively link her budget ­surplus goal directly to lower interest rates, saying that the Reserve Bank of Australia has “plenty of room” to cut its


Westpac Leading Index: growth below trend

For the sixth month in a row, the growth rate of Westpac’s Leading Index, released earlier this morning, has been below trend. Westpac contend this is consistent with a GDP growth rate of 3% in 2012, although I think this is more of a lagging forecast, than leading, given the race to surplus. The annualised


It’s the process, stupid

At the AFR this morning, Jennifer Hewitt has a scoop around details of a “secret” deal between Kevin Rudd and Andrew Forest in the dying days of the RSPT: The night before Kevin Rudd was rolled as prime minister, he and miner Andrew Forrest had just agreed to transform the resource super profits tax into a


The surplus conundrum

Cross posted with permission from Mark the Graph According to today’s Australian, the Treasury has launched an investigation into why it has been overestimating company tax revenue, with forecasts of the government’s tax shortfall rising ahead of next month’s budget. So let’s have a look at the data. Every month the Department of Finance and Deregulation


Tea leaf reading of RBA Minutes

In case you’ve missed it, the RBA released its Minutes from its most recent board meeting this morning, and as usual, the punditry scoured through the document before opining on “certain” rate cuts. Here’s a selection of comments, analysis and thoughts from the mainstream crowd. First the reaction from CBA Economics, focusing on the jobs


Car sales rise strongly in March

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released new motor vehicle sales data for the month of March: On a seasonally adjusted basis, new motor vehicle sales rose by 4.0% in March to be 4.0% higher over the year. Most of the increase in sales over the month was driven


RBA Minutes

Here are the full minutes from this month’s interest rate decision – where they held at 4.25% – by the Reserve Bank of Australia (RBA) with a Wordle of the text above:   International Economic Conditions Members noted that the growth rate of the world economy was expected to be at a below-trend pace in


Sorting out time to work

Cross posted with permission from Mark the Graph At the risk of being labeled a pedant, I will return to Matt Cowgill’s chart from which he argued that full-time employment growth has been seriously failing to keep pace with population growth. Matt’s chart is as follows: In response to my previous blog, Matt tweeted that his chart


Swan’s greatest failure

John Howard once famously described himself as “Lazarus with a triple bypass” but there is another political survivor who has shown every bit as impressive political cunning to push his star to new highs despite a series of policy debacles that have brought down those around him. That man is the Treasurer, Wayne Swan. Consider


Unemployment gulf revisited

By Leith van Onselen Earlier this month, Australia’s unofficial provider of labour force data, Roy Morgan Research, released its employment figures for March, whereby it estimated that 9.3% of Australians were unemployed, down -0.4% from February 2012. As explained previously, Roy Morgan Research measures employment differently from the Australian Bureau of Statistics (ABS), which is


Saul Eslake gives manufacturing the bird

On Friday, Saul Eslake released a note condemning Australian manufacturing to its fate, not to mention condemning outright anyone who sees it as not such a good idea to let Dutch disease have its way. The Merrill Lynch note was a near carbon copy of Canberran rhetoric on the issue and as such is worth


Personal, commercial finance contracts in February

By Leith van Onselen The Australian Bureau of Statistics (ABS) this morning released the Lending Finance data for February, which registered a sharp fall in the value of personal and commercial financing commitments; although lease financing commitments registered a solid rise: In seasonally adjusted terms, the value of personal finance commitments fell -3.8% in February


The Kouk wants you to borrow

Former TD Securities economist and advisor to Julia Gillard, Stephen Koukoulas, has emerged as an interesting new voice in the blogosphere in the past few months. Today he appears in the AFR to put his stamp of approval on the Swan plan to drive a surplus as soon as possible: There is an almost unlimited


Chart of the Day: insolvencies rising

Cross posted with permission from Mark the Graph. The Insolvency and Trustee Service Australia is the government agency responsible for the administration and regulation of the personal insolvency system in Australia. Every quarter it releases data on personal insolvency actions. Yesterday it released data for Q1 2012. That data showed a 10 per cent increase in personal


Mining set to resume ad war

So, the MRRT truce is broken. From the AFR: A truce in the mining industry’s advertising war against the government – agreed when Julia Gillard became Prime Minister and offered to renegotiate the mining tax – is about to be broken with new print ads set to complain about possible new imposts in the budget.


Chart of the Day: does growth equal jobs?

Today’s (late) chart, given the overwhelming subject throughout the day has been the “surprising” employment figures, is from Matt Cowgill, and is fairly self evident – most job growth has been via part time employment, whereas full time jobs remain static:   As Matt tweeted earlier, three points come about from the numbers released today.


Has unemployment peaked?

ANZ has an interesting note out today asking the suddenly all too real question: HAS THE UNEMPLOYMENT RATE PEAKED? •Employment rose by 44k in March, well above market expectations of +6.5k. The unemployment rate was steady at 5.2% (mkt: 5.3%), and has been broadly stable since July 2011. •In a trend sense, the multi-speed nature


Employment in detail

By Leith van Onselen As Houses & Holes reported earlier, the Australian Bureau of Statistics (ABS) this morning released the labour force data for the month of March and it was very good. In seasonally adjusted terms, total employment increased 44,000 (0.4%) to 11,491,200. Full-time employment increased 15,800 (0.2%) to 8,080,400 and part-time employment increased


Inflation & unemployment expectations both high

You could be forgiven for seeing that headline as a contradiction. But really, it makes perfect sense in today’s “adjustment” economy. We’ve got inflation pouring in through the mining boom. And job losses mounting in the old services economy. Anyways, these are the results of today’s Westpac Melbourne Institute Expectations Survey. First up, inflation expectations


Jobs, and lots of ’em!

The ABS just released its Labour Force Survey for March and the results are another slap in the face for employment bears (including me!): MARCH KEY POINTS TREND ESTIMATES (MONTHLY CHANGE) Employment increased to 11,465,700. Unemployment increased to 626,800. Unemployment rate steady at 5.2%. Participation rate steady at 65.3%. Aggregate monthly hours worked increased to


Roy Morgan consumer confidence also weak

Roy Morgan’s weekly consumer confidence number is out and strongly backs up the Westpac/Melbourne Institute survey releases earlier today. Here are the two indexes: The different time periods make it difficult to see but both surveys show the same pattern of a bounce from July last year on the expectation of a rate cut and


IMF endorses saving

As you may be aware, this morning the IMF rode to the support of the Australian government’s surplus drive (if resistance hasn’t already been killed by S&P). Here’s a summary of what it said: Saving up during good times for use in bad times—via countercyclical budgetary policies—protects small commodity-exporting countries from swings in commodity prices.