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.


The Qantas answer

I’m awarding two of yesterday’s comments full publication and acknowledgement on the Qantas question. The first is by Tubemaster, a former aviation insider who nicely captured the competitive pressures at work inside airlines. The second is by regular commenter, Ronin, who makes clear that safety and commercial pressures are a troubling mix. So, the implied


Irwinomics confronts mining

At Australia Zoo (I had a lovely time there on the weekend, thanks for asking) there are numerous signs posted to encourage visitors not to buy native animal products – crocodile, emu, and kangaroo meat for example.  I found this very odd, as crocodile and emu are farmed, and most kangaroo species are not endangered


House price falls continue

We’ll have much more later today on the R.P.Data September results, but for the time being home prices fell a seasonally adjusted 0.2 per cent in September after falling a 0.4 per cent in August. Here is a chart of the raw data monthly fall: And seasonally adjusted:


Credit growth little changed

RBA credit aggregates for September are out and show an ongoing flat trend of low credit growth in housing, personal and business credit: Total credit provided to the private sector by financial intermediaries rose by 0.5 per cent over September 2011, after rising by 0.2 per cent over August. Over the year to September, total


White collar jobs recession?

Recent confusion over the apparently conflicting signals of increasing unemployment, but lower numbers of Newstart welfare recipients was resolved here at MacroBusiness.   Simply put, the two measures differ due to time lags, variations in the population sample (you need less than $3000 to qualify for Newstart), time lags and seasonal patterns. The current softening of


Where is the inflation?

We all know that the cost of living is rising, we feel it every day, see it on the news and read it in the press. Part of Australia’s economic doldrums can probably be slated home to the fact that people are concerned about the rising cost of the high visibility items in their shopping


Occupying Struggle Street

The Occupy Wall Street movement has gained traction globally under the banner of speaking up for the 99% in an era of growing income inequality.  But while the protesters camp out in cities around the globe, low-income earners in the US, and many other developed nations, have been camped out themselves for the past two


March of the rent-seekers

Obviously at MB we are more used to bashing the MSM than praising it. But, when a ball-tearing piece of analysis comes along, it behooves us to give it as much promotion as possible. And that’s the case with yesterday’s comment by Jessica Irvine at the SMH. Jessica has recently written some bold stuff, putting


Big Australia myths

Oliver Hartwich, from the oddly named Centre for Independent Studies, has penned an enthusistic treatise in support of a “Big Australia”.  More on Hartwich’s article later. First, a brief background (previous posts, here and here, cover various other aspects of the population debate). The population debate in Australia is certainly not new, although credit goes


Ministry of Information spins iron ore

The Unconventional Economist has noted before that the business coverage on the ABC is capable of some happy interpretations of economic data. Last night was a clear case in point. During the news, Phillip Lasker presented details of the ongoing crash in the iron ore price and kudos for covering it.  But he overlaid his


Time to cut

The CPI data released this morning was a fantasatic number if the RBA wants to act on the two most important words in their vocabulary currently: “if needed”. Coming in at 0.6% quarter on quarter (qoq) the headline CPI was right on the money as was the year on year (yoy) out turn of 3.5%. But it was


Do we need foreign investment?

This post explores a simple question.  Why do we need foreign investment? The below quote from Mark Mansfield triggered this line of thought. We do not need foreign investment to develop Australia. We may need to buy technology and skilled labour from overseas, but we do not need foreign investment. Foreign investors cannot spend their


Alternative egg heads

Every month the Melbourne Institute puts out its economic forecasts for the year ahead. I like to follow these forecasts because the Institute is made up of very smart, egg-head economists in the mould of the Treasury and RBA, but without the constraints of politics or central bank protocol. Throughout this year they forecast lacklustre


One glowing local government

Citizens of Australia and New Zealand, take note of the below YouTube video the next time your local government increases your council rates or unnecessarily meddles in your daily life. Sandy Springs, Georgia is a northern suburb of Atlanta that is home to around 95,000 people. In 2005, Sandy Springs took the novel step of


Demonising mining

This morning the head of the Minerals Council of NSW, Nikki Williams, gave a feisty speech about the increasingly troubled relationship between mining firms and the community. The speech left me a bit short of oxygen to be honest and, in my view, will simply inflame tensions. Let’s take a look: We’re the darlings of


Producer prices clear way for rate cut (updated)

ABS Producer Prices for the September quarter have come in weak: SEPTEMBER KEY POINTS FINAL (STAGE 3) COMMODITIES rose 0.6% in the September quarter 2011. mainly due to rises in the prices received for electricity, gas and water (+8.2%), commercial fishing (+14.1%) and other agriculture (+3.7%). partly offset by falls in the prices received for


Terms of trade still taking a hit

The Australian’s China correspondent, Michael Sainsbury reckons you should worry about Europe, not China: To read some of the headlines this week about Australia’s biggest export, iron ore, one might have thought the sky was falling. One might have concluded the iron ore worm had suddenly turned, that by far our biggest market, China, had suddenly got


Terms of trade expectations

The ABS today released their International Trade Price Indexes for September.  These figures are not used to produce the official terms of trade measure, but they can be used to generate a very close alternative estimate. Today’s numbers show import prices flat over the Sept quarter, with export prices up 4%.  This is likely to


Mining jobs in context

The Pascometer offers an advertorial today for “Queensland Mining and Gas Jobs Expo” which: …rolls into Caloundra on the Sunshine Coast today with organisers expecting 2000 people to attend.  On Wednesday 10,000 people turned up for the expo’s Gold Coast gig. The patchwork economy is working. Those with longer memories will recall job applicants queueing


Will you pay for The Oz?

In a stroke of irony, The Australian released the following story online this afternoon: THE Australian has announced it will launch digital subscriptions on Monday, with a three-month free trial for all readers. Publisher News Limited said the national broadsheet’s strategy was built around a digital content pass which would provide access to The Australian online and


NAB survey confirms Dutch disease

The September quarter NAB Business Survey  is out and as you can see above. It shows an economy with slumping confidence and conditions, but stable pricing. NAB also makes a point of describing an economy suffering from an unprecedented division between weakness and strength: Business conditions slump and confidence falters mid-quarter, but monthly profile points to subsequent


The jobless vs dole numbers

The RBA and some commentators seem a little confused about the Australian labour market.  Why? Because the ABS labour force data is showing the unemployment rate rising, while the Department of Education, Employment and Workplace Relations (DEEWR) data on income support payments (such as Youth allowance and Newstart) shows a declining number of welfare recipients.


The NBN is money well spent

Yesterday, Telstra shareholders voted in support of the deal offered by the federal government and NBN Co. At a glance this deal appears to offer Telstra $11billion compensation for access to its infrastructure facilities, and for the decommissioning of the copper network. For me, the technicalities of this deal are almost immaterial in terms of


Edgy consumers

Westpac has just released its October Red Book, a comprehensive guide to consumer sentiment. It really is an exceptional document and well worth a few moments of your time. Westpac’s own summary of the findings reads: The Westpac–Melbourne Institute Consumer Sentiment Survey showed a slight improvement in October, holding on to September’s surprisingly strong 8.1%


Will it be a black Christmas?

Dun & Bradstreet, the collections agency, has released a new consumer survey suggesting that the forthcoming Christmas will be a dour one. According to the survey: …which focuses on Australians’ expectations for savings, credit usage, spending and debt performance, also found that only 20 per cent planned to apply for new credit, down from a


The resources curse

Australia’s current terms of trade boom is a media darling.  This widely quoted statistic has provided a degree of comfort to those who proclaim the robustness of Australia’s economy due to close trade connections with Asia, and China in particular. Most readers would not be aware that macroeconomic researchers have built up a solid evidence


More on the car-house connection

I’ve dug into some more data to see what the car sales-housing connection might be able to tell us about future demand for credit and the results are striking. First is ex-refinancing monthly housing finance charted against car sales and, as you can see, there’s some kind of lead/lag correlation. The largest divergence over recent


Lending finance solid

ABS Lending Finance for August is out and shows growth across the board: AUGUST KEY FIGURES Jul 2011 Aug 2011 Jul 2011 to Aug 2011 $m $m % change TREND ESTIMATES Housing finance for owner occupation(a) 14 361 14 554 1.3 Personal finance 7 081 7 145 0.9 Commercial finance 32 298 32 948 2.0


Westpac on structural unemployment

Find below a new study by Westpac into the employment stresses across different states and industries. It includes the first ruminations on structural unemployment that I’ve seen in Australia. The reason is something that Runplestatskin has been discussing for some time: labour is not fungible. Westpac continues to lead the way in institutional research. er20111014BullJobsIndustryState