TD Securities monthly inflation for February is out and, in what is becoming a regular occurrence, pulled a donut after a preceding spike: Leaving year on year inflation at a happy 2.4%:
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.
Next week Australia releases December quarter national accounts. I will repeat my quarterly enjoiner that predicting GDP is a fool’s errand (which is why I don’t do it). There are simply too many opaque and moving parts to make it anything other than a guess. But the major banks all tempt fate with forecasts so find below
The Courier-Mail is reporting that the final Queensland Commission of Audit report has been presented to the Government, although the Commission’s website is yet to publish the document. Not surprisingly the report apparently recommends selling ports and electricity assets in order to reduce government debt. The Australian indicates that the report says it would take 50 years
The HIA quarterly tradie index is out and shows an increasing surplus of skilled laborers, although still modest, through late last year with the headline number weakening 7 points to +22. That is still the most slack since 2009: The latest HIA Trades report for the December 2012 quarter highlights the soft state of the
The steadfastly inept Australian Industry Group this morning released its PMI for February and rather than blast the universe with the news that the two and a half year manufacturing depression is ongoing, it cheerfully highlights a marginal improvement in the index: Although manufacturing activity contracted for a 12th consecutive month in February, the pace
Just two days ago, Prime Minister Julia Gillard announced that: “We can still be a country that manufactures things. But we’re going to have to do it differently” She was spot on, if by differently she means we’ll make things without investing any capital. That will be very different indeed. The truth is Australian manufacturing
The ABS has released the much awaited December quarter private capex figures, which offer us the best guide for the trajectory of mining investment and the RBA’s project for filling the gap it will leave behind as the boom ends. The news is both good and bad. December quarter capex missed consensus of 1% gain
By Leith van Onselen The Reserve Bank of Australia (RBA) has just released the private sector credit aggregates data for the month of January: Total credit provided to the private sector by financial intermediaries rose by 0.2 per cent over January 2013, after increasing by 0.4 per cent over December. Over the year to January,
S&P has released an update on Australia’s sovereign rating and seems to have turned more positive on the risks to our AAA (the opposite interpretation is available in the memory free zone that is the MSM). The usual warnings are there: Australia is not without a number of vulnerabilities. The economy holds a large amount
By Leith van Onselen The ABS has just released data on the value of construction work done for the December quarter of 2012, which registered a seasonally-adjusted -0.1% fall in total construction activity over the December quarter but a 11.9% increase over the year. Analysts had expected a 1.5% increase over the quarter. The fall
No doubt everyone will have heard the reassuring story that the Australian mining boom has three phases. The first was a rise in prices. The second was the investment surge. The third is purported to be the volume surge that follows all of those new mines. Phase 3 has always been questionable in my mind.
As Mitch Hooke declares his intention to depart the Minerals Council, the senate is set to investigate his handwork. From the AFR: A Senate inquiry into the mining tax will go ahead after the Greens agreed to amend the terms of reference to remove any mention of strengthening the tax. Greens leader Christine Milne, who
One of the more infamous chins in Australian business has resigned. Mitch Hooke has run the Minerals Council of Australia since 2002: In a short statement, council chairman Peter Johnston said Mr Hooke had had an enormous impact on the sector since taking up the role more than ten years ago. “Ten years ago this
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released its Balance of Payments – Goods and Services data for the December quarter, which: Provides preliminary quarterly estimates of goods and services data including preliminary quarterly estimates of Chain Volume Measures for goods debits. Preliminary seasonally adjusted quarterly balance on goods and
The RBA may not be printing money to give to foreign investors but somebody is doing their best to satisfy demand. From the Daily Telegraph: SYDNEY has been flooded with counterfeit cash that is of such high quality some banks are struggling to detect it. In the past two months, organised crime gangs have caused
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released concrete production statistics for the month of January, which revealed a -22% fall in concrete volumes over the month but a 10% rise over the year. The data is incredibly volatile and no doubt affected by seasonality. As such, it is presented
For those that don’t know, over the weekend Moody’s stripped the UK of its AAA rating. Does the UK downgrade matter to Australia? In the short term it may add to some of the upwards pressure on the Australian dollar as one less AAA nation is on offer to global capital (although its been well-telegraphed
Treasury has reviewed its own forecasting record, presumably in an effort to improve performance. It found that: Budget forecasts of nominal GDP growth exhibit little evidence of bias over the past two decades, with the average Budget forecast error being insignificantly different from zero over this period. That said, an examination of the patterns in forecast
The below article, which has been cross-posted from The Conversation, examines the future of toll road Public-Private Partnerships (PPPs) in Australia. The author is Dr Stephen King, who is an Economics Professor at Monash University. BrisConections has been placed into administration only seven months after opening the Brisbane Airport Link toll road/tunnel. It has not
From the AFR: “To engage in some sort of European-style austerity for austerity’s sake approach would be, I think, very detrimental to growth in jobs and our economy and the government won’t do it,” Mr Swan said at an Australian Business Economists breakfast. “We’re determined to come to a surplus at a pace that’ll be
For any economist that is burdened with a brain and unencumbered by an interest, there is really only one question that matters for Australia this year and it is this: when will mining investment peak and what will replace it? An important part of answering this question will arrive next Thursday in the form of
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released the Average Weekly Earnings (AWE) data for the six months to November 2012. A breakdown of the key changes is provided below: According to the ABS, on a seasonally-adjusted basis, national total AWE increased by 2.7% in the six months to November
Please find below an interesting post from economist, Matt Cowgill, questioning the merits of taxing superannuation at a flat rate. Be sure to also check out Matt’s blog, We Are All Dead, which examines a wide range of political and economic policy issues. I can understand why libertarians might favour a flat tax on superannuation
The news this morning in the ongoing mining tax stoush is good. The ATO it appears is not prepared to lie down quite so easily as our politicians: Miners risk falling foul of the Australian Taxation Office over valuations used in calculating mining tax as desperation for revenue grows, tax experts say. The Tax Office
By Leith van Onselen Much of Australia’s planning policies are based on the presumption that the bulk of the population commutes to the central core for employment. As such there is the desire by planners to limit urban sprawl, which is believed to reduce overall commuting times, resource use and pollution, and the need for
The RBA has a paper out today that is long and kind of boring for all but the wonks that concludes what intuitively we already know, the mining boom has contributed a lot to growth: This paper quantifies the links from demand for Australia’s natural resources to activity in other domestic industries by using structural
Bravo to Twiggy Forrest for today announcing that he and his wife Nicola: …have pledged to donate at least half of their wealth to charity, joining more than 100 billionaires around the globe. The Forrests – with an estimated wealth of nearly $6 billion – are among the first billionaires from outside the United States to
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released its Wage Price Index for the December quarter of 2012, which revealed a continued moderation of wage pressures across the economy (see below charts). According to the ABS, wages grew by 0.8% in the December quarter, with both the public and private