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.


RBA declares war on surplus politics

What is Reserve bank board member Heather Ridout saying? From The Australian this morning: RESERVE Bank board member Heather Ridout says the Australian economy will need “active management” this year to cope with the slowing mining boom and high dollar, as the case for rate cuts was strengthened by a sharp fall in the rate of


CPI in detail

By Leith van Onselen As summarised earlier by Houses and Holes, the Australian Bureau of Statistics (ABS) this morning released the Consumer Price Index (CPI) data for the December quarter 0f 2012, which registered a reduction in inflationary pressures across the Australian economy, coming in well below consensus: According to the ABS, headline CPI rose


CPI soft

The December quarter CPI is in and it is no surprise to see a weak economy producing weakening price growth, just 0.2% quarter on quarter, half consensus, and 2.2% year on year, below the 2.4% consensus. Quarter on quarter: Year on year: The trimmed mean and weighted median both undershot consensus by a point and


Economist consensus for Australia in 2013

Find below the result of Bloomie’s recent survey of major economists and their views on the Australian economy in 2013: Make of that what you will. The growth rate looks about right, assuming stronger in the first half and weakening in the second. The unemployment rate looks conservative to me. As do projections of the


Bill Evans trashes his leading index again

Westpac’s Leading Index for November is out and rose strongly: The annualised growth rate of the Westpac Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was 3.9% in November, above its long term trend of 2.8%. The annualised growth rate of the Coincident Index, which gives a pulse of


Baby boomers unprepared for retirement

By Leith van Onselen Yesterday, the Financial Standard Online published an interesting article warning that the baby boomer generation in Australia is unprepared financially for retirement, with many seeking to draw-down on their property holdings: A whopping 86% of Australia’s 5.5 million baby boomers are, in varying degrees, financially under-prepared for retirement, according to research


Roy Morgan consumer confidence retraces

From Roy Morgan: The weekly Morgan Consumer Confidence Rating shows Consumer Confidence falling to 119.9pts (down 4.1pts since January 12/13, 2013). Consumer Confidence is now 2.6pts higher than at the same time a year ago, January 21/22, 2012 — 117.3. The fall in Consumer Confidence has been driven by a decrease in confidence in all


CBA mulls torching brand in Ashes inferno

From the AFR late yesterday: Commonwealth Bank of Australia is believed to be the frontrunner as the new sponsor of the Ashes cricket series to be played in Australia in 2013-14, with another foreign financial services brand also understood to be vying for the iconic sponsorship rights. CBA is currently the shirt sponsor and the series sponsor


ACCI Investor Confidence plumbs new depths

The Australian Chamber of Commerce and Industry largely represents building and manufacturing interests. It’s quarterly sentiment survey is therefore aimed at that part of the economy that is being targeted for a rebound in investment by the RBA and Treasury in lieu of falling mining capex. And there is a little hope in the survey


CPI previews

Some of the sting has gone out of next week’s December quarter CPI release because the RBA is unlikely to cut in February unless iron ore falls  off its perch. Still, a soft reading might give them pause and if TD Securities monthly inflation is any guide, the number will be soft. Westpac certainly thinks so,


QLD’s Petri dish unemployment

The last 24 hours has seen an unusually high level of drivel emanating from our point-scoring politicians and media, this time over unemployment statistics. Carried largely by the News Ltd press, the Opposition and Government have respectively had Ricardian and Keynesian convulsions. The Opposition claims that the weakening employment market is the result of the


Abbott spouts Ricardian gobbledygook

Federal Opposition leader Tony Abbott has chimed in on today’s weak employment report: It was no wonder jobs growth was weak “when you’ve got a government which simply cannot deliver when it comes to budget management….No government can be good for jobs if it is not good for the economy,” he said. “As Julia Gillard herself


Employment in detail

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released labour force data for the month of December, which reported a seasonally-adjusted rise in the headline unemployment rate to 5.4% from 5.3% in October (revised upwards from 5.2%), as well as a fall in the total number of jobs across the economy. The


Unemployment back to 5.4%

ABS December unemployment figures are out and the stuttering rise continues with the official rate up 2bps  to 5.4%. The trend is definitely up: Full time employment fell 13.8k and part time rose 8.3k for a balance on the month of minus 5.5k. The participation rate continues to disguise the job shedding, remaining flat at


Some questions for Joe Hockey

The AFR has a little panegyric of Shadow Treasurer Joe Hockey today: Productivity reform and a banking inquiry are at the top of his to-do list in what promises to be another brutal year of federal politics. But the shadow treasurer has also added “respect for taxpayers”, and says he won’t walk away from controversial comments about a


Building industry loses faith in rebound plan

And why wouldn’t they? The RBA/Treasury plan to fill declining mining growth with more houses is not going well. New home sales have tanked since rate cuts started: The AFR lines up quotes from building materials executives today: The building industry is cutting costs and shedding jobs amid pred­ictions that construction in Australia faces permanent structural change


DEEWR Leading Indicator sees it raining jobs

DEEWR publishes a monthly leading indicator of employment trends which has a decent forecasting record. It rose today for the sixth month in a row: Here’s what DEEWR says: DEEWR’s Monthly Leading Indicator of Employment (Indicator) has risen for the sixth consecutive month in January 2013, after falling for seven consecutive months previously. A quickening in the


New car sales hit record in December

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released new motor vehicle sales for the month of December, which registered a seasonally-adjusted 2.7% rise in sales over the month and a 17.9% increase over the year. The result represented a new record for car sales of 98,264 units sold over the month:


RBA fires another blank at soft confidence

The Westpac Melbourne Institute Index of Consumer Sentiment rose by 0.6% in January from 100.0 in December to 100.6 in January. According to Bill Evans: This is the third consecutive month when the Index has been at or above the 100 level. That compares with 14 of the previous 16 months when the Index had registered below 100. However, having


Boral gives RBA housing plan the thumbs down

Boral announced this morning that it will shed another 700 Australian jobs before March: The changes will see a reduction in employee numbers in Australia, resulting in benefits of approximately $90 million annually, with estimated savings of $37 million to be delivered in FY2013. “The restructure I am announcing today will transform the Group into an


In defense of cash for clunkers

From the AFR: General Motors’ local arm, GM Holden, which last year received promises of $275 million in public funds to continue manufacturing cars in Adelaide, confirmed the company was considering requesting money for investment in its V6 engine plant in Port Melbourne. “With the $275 million I understand why some people found that distasteful,”


A million Yellow Tails netted for slaughter

From the WSJ: Australia’s commodities boom created the $200,000 high-school dropout, theworld’s richest woman, and the least affordable housing market on earth. And it could soon put a dent in the makers of Yellow Tail, the best selling Australian wine in America. From the WSJ’s Caroline Henshaw: Australia’s largest family-owned winery relies on the U.S. for three-quarters of its