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.
Macquarie is predicting a white collar recession in Australia, raising its forecast for unemployment to 6%: Our economics team recently moved its unemployment forecasts to 6% on the view that Australia will experience a “white collar” recession. The team sees upside risk to 7% in the event that retail, manufacturing and tourism sectors also decide
New home sales have posted a modest 5.5% bounce in October. They are still languishing, however, as shown in the above chart. As Ross “pull no punches” Gittins would say, off to the Pilbara with you builders. Full release from the HIA below: 2011-10 NHSS National Media Release
From AAP this morning: Deloitte Access Economics director Chris Richardson said the government planned to cut spending when the Reserve Bank of Australia (RBA) had cut its cash rate in early November. The RBA cut the cash rate from 4.75 per cent to 4.5 per cent to provide some stimulus for a slowing economy. “What
Well, it’s finally happened. Manufacturing (or at least the AMWU) has taken the gloves off in its fight to survive the “adjustment” planned for it by the Canberra/mining nexus. Here’s the website. And the video (h/t the Lorax):
In recent days, Ross Gittins delivered a spirited defense of the Australian Treasury’s embrace of Dutch disease. He based his defense on an endorsement of a speech delivered by the Head of Treasury’s Macro Group, David Gruen. I haven’t seen the speech before today but read it this morning and it’s got some fascinating material.
From Business Spectator via the AFR and The Oz comes the following news on the Budget this morning: Federal Treasurer Wayne Swan has said that larger than expected spending cuts will be needed to preserve Labor’s promise of a budget surplus in 2012-13, thanks largely to a $7 billion drop in capital gains tax revenue
Cohousing will grow more rapidly in Australia for three reasons – a drive for efficiency including trends towards collaborative consumption and housing densification, the price of Australian homes with substantial downside risks, and the limited scope for personal expression in the design of new attached homes. Yet social obstacles to this type of venture remain.
In December 2010, David Murray, Chairman of the Future Fund and former CEO of the Commonwealth Bank, issued a stern warning on Australia’s high level of net foreign liabilities, which had reached nearly 60% of GDP: …the assumption that Australia could maintain a high level of foreign borrowings because the economy was underpinned by the
The ABS released their Corrective Services statistics yesterday. Below is a key chart showing the relatively flat prisoner numbers. Indeed Australia’s imprisonment rate has barely notched up since 2001, and compares favourably in global comparisons. While very positive, this data provides an opportunity to reflect on the role of prisons in society. Recently, the discussion
From Roy Morgan’s weekly consumer confidence number we can conclude that we are a resilient lot! Consumer Confidence rose slightly to 113.1pts (up 1pt in a week), according to the Roy Morgan Consumer Confidence Rating conducted last weekend (November 19/20, 2011). Consumer Confidence is now 9.8pts lower than a year ago, November 20/21, 2010 (122.9).
The ABS quarterly report, Construction Work Done, is out today and whooshka, there goes there the neighbourhood: SEPTEMBER KEY POINTS TOTAL CONSTRUCTION The trend estimate for total construction work done rose 5.0% in the September quarter 2011. The seasonally adjusted estimate for total construction work done rose 12.5%, to $47,467.3m, in the September quarter. BUILDING
Let me begin by saying that I am good fun at a party. Get a few beers into me and I’m even capable of taking over. In a good way that is, having fun with all and sundry, from atop a table. Usually it’s mocking myself because I’ve spent the prior couple of hours advising
The contemporary public debate over population growth in Australia has, in my mind, overlooked a crucial question that would help us understand population issues in more depth. Why is there so little illegal immigration to Australia? If the way illegal immigration is portrayed in the media is anything to go by, many would suspect that
Find below the Melbourne Institute November economic forecasts update. Nothing changed from last month, still forecasting lousy 2.4% growth over this financial year and benign inflation. I have to say though, their unemployment peak of 5.2% looks very optimistic to me. Rather out of the blue, they did include this rather provocative little paragraph that
Germany, the current European workhorse, is one of the nine OECD countries without a national statutory minimum wage. As election time rolls around, Angela Merkel is considering adopting the opposition party’s position on regulating a Germany-wide minimum wage as a political tactic. Given Germany’s great economic success and historically low unemployment, why bother? Germany has
Yesterday’s Daily Telegraph contained an interesting article on the increasing number of Australians departing Australia permanently: OVERALL migration from Australia has soared to a record high – with 88,000 leaving in the past year, almost half from NSW. The stampede abroad is a 90 per cent increase 10 years ago, figures from the Department of
There is enough bad regulation out there that it really should be newsworthy when good regulation is implemented. Last week, Stephen King, arguably Australia’s best current economist, presented a report card for Australian competition regulation at a UQ luncheon in Brisbane which highlighted a few of these good regulations. For the bread and butter regulation
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Consumers plan a modestly increased Christmas outlay this year versus last and increasingly think that now is a good time to buy a house. Those are two of the findings in Westpac’s excellent November Red Book. No matter what business you’re in, reading this is worth 10 minutes of your time. It is the defining document
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Queensland’s alternative Premier, former Brisbane Lord Mayor Campbell Newman, has been on the campaign trail for most of 2011. Last week he announced the Liberal Party’s position on Queensland’s Wild Rivers Legislation. He intends to remove three rivers in Cape York from the legislation, which is no surprise given that Tony Abbot announced a year
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New car sales in October continued there good run, up 1.1% mom and 4.4% yoy. The strength was broad based too. Here are the key figures from the ABS: OCTOBER KEY FIGURES NSW Vic. Qld SA WA Tas.(a) NT(a) ACT(a) Aust. Vehicle sales (no.) Trend 27 545 23 462 18 769 5 651 9 280 1
From News today comes the following: Billions of dollars in spending cuts will be announced when the Government releases the latest official assessment of the national economy before Christmas. The reductions will be aimed at bolstering the Government’s determination to deliver a Budget surplus in 2012-13. And it will come in the face of persistent
This morning there was an interesting poll result with the Gillard government continuing to enjoy a new upwards trend in the polls. Things are a bit slow this arvo so I spent the last couple of hours making up this chart. It shows the Roy Morgan Two Party preferred measures with rate tightening and easing
SEPTEMBER KEY FIGURES Aug 2011 Sep 2011 Aug 2011 to Sep 2011 $m $m % change TREND ESTIMATES Housing finance for owner occupation(a) 14 528 14 644 0.8 Personal finance 7 072 7 086 0.2 Commercial finance 32 145 32 229 0.3 Lease finance 407 410 0.6 SEASONALLY ADJUSTED ESTIMATES Housing finance for owner occupation(a)
Throughout this year, I have posited that Australia is now a one speed economy – slow. That this has transpired amidst a mining boom has amazed and befuddled economists and media alike. But it’a really not all that hard to understand. Offsetting the mining boom is a huge and unprecedented slowdown in the issuance of
Specialisation as an instrument of economic growth is close to an undisputable fact. Whether there are limitations to this process, I am not sure, but for me there is a more significant question that really needs a satisfactory answer if we are to understand economic growth – if specialisation causes economic growth, what causes specialisation?
