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 Reserve Bank of Australia’s independence is an illusion. The RBA exists because the Menzies government passed the Reserve Bank Act 1959 to create it, and subsequent governments, while occasionally tinkering with the operational framework, have seen no reason to abolish it. I have long found it interesting that even relatively minor fiscal decisions of
Westpac and the ACCI today released the 200th edition (started in Dec 1961) of their quarterly joint survey of Australian industry and it does not make comfortable reading. Westpac says in the summary conclusion that: This is a survey which is sending a very clear message. It is time for the authorities to ease financial
The Westpac/Melbourne Institute Leading Indicators are out and show some stabilisation: 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 3.1% in July 2011, around its long term trend of 3.1%. The annualised growth rate of the Coincident Index which gives a pulse
As no doubt many of you are already aware, Wayne Swan has been declared Finance Minister of the Year by Euromoney magazine. As someone who has created and engineered similar types of magazine executions, let me establish first that I really don’t think this is worth the bally-hoo it has received. Such special issues are
I am more used to laughing at IMF prescriptions for solving financial crises than I am used to praising their work, but the latest World Economic Outlook is a breath of fresh air in more ways than one. It begins with an admission that the last WEO got it all wrong, something a few Australian
Remember readers, some months ago I posted the new economic glossary, which was a set of fresh terms to help describe Australia’s rapidly evolving contemporary economy. Here is the lexicon as it stands: Politico-housing complex The great public/private partnership of the Australian housing quango that has virtually nothing in common with either capitalism or a “market”. Invisopower! The myterious
There are a couple of areas around Australia that I consider interesting microcosms of the risks of non-diversified long term investment portfolios. There are obviously some regions in Australia, such as mining towns, that are currently booming and you would probably be laughed at to suggest that these places are in danger of having their
Yesterday Treasury Secretary, Martin Parkinson, gave a speech in the lions den of the Australian Industry Group National Forum (perhaps not lion’s den, more like cat’s basket). In it, the head of the Australian Treasury held forth on the benefits and risks of the mining boom. It was a very long speech and I won’t
Per Capita is a small progressive thing tank run by former LEK consultant, David Hetherington. Today it released a new study of Australian attitudes towards the tax system. Hetherington says: The Per Capita Tax Survey for 2011 has asked 1,300 Australians for their views on personal tax contributions, overall taxation levels, public service spending and
Why does the wage of a musician in a string quartet rise over time at roughly the same pace as wages in other areas of the economy, despite the lack of productivity gains in the performance of music? William J Baumol solved this riddle in the 1960s. His insight, known as Baumol’s cost disease, is
Find below footage of Wayne Swan speaking with Bloomberg this afternoon. His responses include deeply contradictory commitments to a diversified economy and an Australian dollar free to appreciate for ever. Apparently he “would never want to see our economy become too excessively dependent upon one country or one commodity”!?!
The ABS released its detailed quarterly labour force survey data for August today. Digesting this data takes a little time and it needs to be interpreted alongside the monthly employment data, which has shown an uptick in unemployment in July and August. Since August 2008 the following sectors of the economy have reduced their share
ABS new cars ales are out for August and show a 3.3% jump yoy: TOTAL NEW MOTOR VEHICLE SALES The August 2011 trend estimate (83 720) has increased by 1.3% when compared with July 2011. Seasonally Adjusted – The August 2011 seasonally adjusted estimate for new motor vehicle sales (87 935) increased by 3.3% when
Westpac has today released its “Expectations Chart Pack”, which includes both inflation and employment expectations (find it below). This month’s results are fascinating. It is no surprise that consumers view of future inflation remains unchanged from last month as the heat has gone out of the CPI debate: I am a little surprised, however, at
Yesterday the ABS released a revision to their methodology for seasonal adjustment to CPI subgroups – an outcome of the 16th Series CPI review. It resulted in a new lower estimate (not a revised estimate) of the trimmed mean and weighted median measures of inflation for the June quarter. News headlines and the foreign exchange
Here are a couple of bank takes on today’s ABS CPI revisions. Consensus is that the RBA’s job of holding rates steady just got a bit easier. I beg to differ. The ABS just handed a PR weapon to every disgruntled business lobby in the services economy. Anyways, Rumplestatskin, our very own CPI guru, will
Consumer Confidence for September is out and shows a jump of 8.1%. Bill Evans puts this down to: This is a surprisingly strong result. We think it emphasises just how important interest rates are to households. Recall that since early May the Reserve Bank has been threatening to raise interest rates. As recently as the August Board meeting
Well…yes…I should say so. Rupert Murdoch owns 70% of Australian newspapers. One of his UK operations has been shown to use unethical practices on an unsettling scale. Those two seem fair enough reasons to me. On the first, the concentration of ownership in newspapers is both a competition issue and a social-democratic one. Many of
Just in case you missed my recent post about growing Australian business insolvencies or are still living on planet Bullhawk with the belief that everything is just fine and anyone complaining is simply a whinger, here comes Dun & Bradstreet with even more evidence to the contrary: Australia has joined Europe as the only markets to
The Nab Survey for August is in and business conditions and confidence are suffering on the back of global volatility. According to the NAB boffins: Business confidence dropped sharply in August, with heightened global uncertainty, large falls in equity markets and the fear of debt market contagion. Confidence deteriorated across all industries, except recreation & personal services
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
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
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
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
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
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,
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
From Westpac and CBA… er20110908BullEmployAug LabourForceAugust2011-08-Sep-2011-1553-1
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,
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
