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.
You will no doubt have noticed the pounding chorus of “productivity now” emanating from the government’s economic pow wow today. Productivity is vital, absolutely so. Wikipedia describes it thus: Productivity is a measure of the efficiency of production. Productivity is a ratio of production output to what is required to produce it (inputs). The measure of productivity
By Leith van Onselen The Australian Bureau of Statistics (ABS) released Mineral & Petroleum Exploration data nd it’s boom boom time in the resources sector! Nationally, expenditure on minerals exploration hit an all-time high of $2,016 million in the December half, with petroleum exploration expenditure also rising to $1,677 million; although it remains well below
From AAP, Glenn Stevens at the Government’s economic do today: “I actually think that a lot of the disquiet and dissatisfaction that we see isn’t really related to the mining boom at all,” he said. “I think it’s got a lot to do with changes of household behaviour, which come after a very unusual period
Westpac Consumer Confidence for June is out and shows a measly 0.3% increase in confidence to 95.6. Here are the survey internals: Bill Evans sums it up better than I can: This is another disappointing result. It follows a second consecutive cut in the official cash rate by the Reserve Bank. Sentiment has risen only 1.1% from
New York, June 12, 2012 — Moody’s Investors Service says that the outlook for Australia’s Aaa foreign and local currency ratings remains stable. Australia’s Aaa ratings are based on four factors: the country’s very high economic strength; very high institutional strength; very high government financial strength, and very low susceptibility to event risk. The conclusions were contained
Courtesy of Mark the Graph. Here are charts for the GDP(E) implicit price deflator index, followed by growth charts for that same index. Lots of volatility to think about here … if history is anything to go by, we can have a few more quarters of significant export price deflation driving real growth in GDP (relates
I like to track the weekly Roy Morgan consumer confidence numbers because they offer an immediate read on the effects of specific events. For instance the index recently got hammered as European and particularly Greek concerns suddenly re-emerged. Late yesterday the weekly data was released showed a decent bounce, up 1.8%: And the reason? Last
According to the 2012 Mercer Cost of Living Survey: Australian cities continue to rank high on the list in the Asia Pacific region and, following the strengthening of the Australian dollar, have all experienced further jumps up the global list since last year. Sydney (11) and Melbourne (15) experienced relatively moderate jumps, up three and
There’s nothing like watching the commentariate fall into line behind a boffin. Better late than never but apparently the Pascometer now gets it too: In his key post-budget speech ( ) Treasury Secretary Martin Parkinson neatly flicked responsibility (in economist-speak, keeping demand ticking along strongly) onto the RBA, but in Friday’s “Glass Half Full” speech, RBA Governor Glenn
From Moody’s comes this skpetically toned take on the NSW Budget: Sydney, June 12, 2012 — Moody’s Investors Service notes that — according to New South Wales’ just released 2012/13 budget — the state’s financial performance is expected to deteriorate in 2012/13 with a deficit (net lending/borrowing result) projected to equal 5.8% of revenues, up from an estimated 4.8%
The May NAB Business Survey is out and is not pretty. The headline business conditions number fell to -4, which is well below the bullhawk inspired lows of last year: And business confidence dropped to -6, still well above the bullhawkian low of last year, thanks no doubt to rate cuts: The internals of the
The quarterly hiring intentions survey from Manpower is out today and shows the declining trend that has been in place all of last year continues with the seasonally adjusted hiring intentions score falling from 12 to 10: As you can see, the survey has so far failed to diagnose with any accuracy the strong slowdown
Cross posted from Mark the Graph. One headline message from the Q1 National Accounts was that prices across the economy fell by one per cent. This deflation meant that an anaemic nominal quarterly growth in our economy of 0.3 per cent for the quarter translated into a real economic growth of 1.3 per cent. To
There’s still plenty of soul searching going on amongst economists and economic commentators today about last week’s strong Australian macro economic data. Ross Gittins spends some time agonising over economic strength before suggesting we all throw in the towel. Given Gittins’ wholeheartedly abandoned his line that we were in a boom after the previous quarter’s
Check out the above image. Is it too long a bow to argue that that is precisely the headline that the RBA was looking for? I don’t think so. They know the slower part of the economy needs relief. They know as well that there is not enough inflation to prevent them providing it. They
A really terrific speech from the Gov today. Address to the American Chamber of Commerce (SA) AMCHAM Internode Business Lunch Adelaide – 8 June 2012 It is very good to be back in Adelaide. Thank you for the invitation. As we meet here, economic discussion in Australia has reached a rather curious position. Consider the background. Australia
Some more good news. In April the trade balance corrected to -$203 million, wiping out its first quarter deficit and beating the consensus of -$900 million easily: In the internals we see that it was a 3.3% rise in exports and 0.9%% fall in imports that delivered the goods:
From the AFR this morning comes an allegation from the boss of Glencore that Australia’s sovereign risk profile has deteriorated: “We have spent a long time on roadshows [with investors] and one of the biggest questions on the roadshows was: ‘Glencore you are in difficult, risky countries. You’ve got a vast amount of assets in
Sorry for a couple of late stories today. From Crikey: Online finance journalism publisher Australian Independent Business Media is edging ever closer to sealing a takeover deal with Kim Williams’ News Limited. AIBM chairman Alan Kohler declined to comment this morning other than to say the tie-up was yet to be done and dusted. However,
By Leith van Onselen As reported by Houses and Holes earlier today, the Australian Bureau of Statistics (ABS) today released labour force data for the month of May, which revealed more strong jobs growth. In seasonally adjusted terms, total employment increased 38,900 (0.3%) to 11,537,900. Full-time employment increased 46,100 (0.6%) to 8,107,900 and part-time employment
Labour Force is out and the strength continues with 46k full time jobs created in May. Part time fell 7k. The unemployment rate still rose 2bps to 5.1%. This result defies heavy falls in both the DEEWR and ANZ job ads for the month. Here are the details with more to come… MAY KEY FIGURES
The Australian Industry Group’s Performance of Construction Index (PCI) is out today and shows move deeper into recession for the sector: As I’ve said before, I am no fan of this index. In fact, it has such a clear bias towards dwelling construction that it makes almost no sense given we’re in the midst of
Cross-posted from Mark the Graph. I am still wrestling with the national accounts data that says we are living in the midst of a deflationary boom. It’s a very rare beast; the opposite of the 1970s stagflation. Either way, I will need to find a theoretical framework to explain our fast-growing, yet price-deflating economy. (Or
By Leith van Onselen Mark the Graph and Stephen Koukoulas yesterday provided some great insights into the main reason why Australia’s March quarter GDP print of 1.3% growth was so strong: because inflation, as measured by the GDP Implicit Price Deflator, fell sharply over the quarter. To highlight the effect of the Implicit Price Deflator
Cross posted from Mark the Graph is an excellent take on the effects of falling inflation on the GDP result. The headline GDP growth story is fantastic: 4.3 per cent growth through the year. Wow! Break out the party, the economy is back on track to a stunning recovery. But the growth in nominal GDP
By Leith van Onselen As noted by Houses and Holes earlier today, the Australian Bureau of Statistics (ABS) today released the national accounts for the March quarter today, which registered very strong 1.3% increase in real GDP over the quarter and a 4.3% rise over the year. The below chart shows the breakdown by component
Well, how about that! National Accounts for the March quarter are out and BOOM! A quarter on quarter increase of 1.3%. An annual increase of 4.3%. Now, the annual increase does overstate things to an extent, given it contains the rebound quarter from last year’s floods. But even so, if you cut a half point
So, yesterday I caught up with Kyran Curry, the sovereign analyst at Standard and Poors. He was kind enough to grant an interview to help clarify the recent debate around his comments that Australia may be at risk of losing its credit ratings in any downturn. For those that missed it, the AFR gave prominent
From Roy Morgan today: Consumer Confidence is at 108.9pts (up 0.6pts in a week) according to the Roy Morgan Consumer Confidence Rating conducted last weekend (June 2/3, 2012). Consumer Confidence is now 4.9pts lower than a year ago June 4/5, 2011 (113.8). Australians confidence about Australia’s economy over the next twelve months has fallen with 39%
The ABS has released the March quarter current account balance and the blowout has begun with a current account deficit (CAD) of -14892 million recorded. That was slightly worse than consensus at -14850. This subtracted 0.5 points of GDP in the quarter: Here are the internals: The big turnaround is obviously in exports, with imports
