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.


NAB survey breaks the gloom

The NAB March Business Survey is out. It looks like a break in the clouds. NAB itself assessed conditions this way: Business conditions recovering while sentiment remains above trend. Inflation remains low, but purchase costs rising. The Australian economy appears to be showing signs of recovery following the flood-induced slowdown, with the NAB business survey


Leigh Harkness: An Optimum Exchange Rate System

Once again Leigh Harkness joins us for a guest post, this time on what he considers the best approach to take in regards to exchange rates for the long term prosperity for the nation. As usual Leigh’s ideas are thought provoking. Since Leigh has been guest posting at MacroBusiness he has been contacted by some


Debt revulsion deepens

More dud data from the ABS this morning in Finance Commitments. Following are the key points. FEBRUARY KEY POINTS FEBRUARY 2011 COMPARED WITH JANUARY 2011: HOUSING FINANCE FOR OWNER OCCUPATION The total value of owner occupied housing commitments excluding alterations and additions fell 1.0% in trend terms and the seasonally adjusted series fell 4.8% PERSONAL


Collateral damage

A recent article in Smartcompany commented on signs that the banks are starting to lend for business as the residential, negative gearing property rort shows signs of slowing. Not likely. What this does not factor in is the relationship between business credit and the heavy dependence on lending against property. According to the Australian Prudential Regulation


RPData on population

RPData produce a weekly report about the housing market. Their latest offerring  has some very interesting data on Australia’s population growth. I do not totally agree with their conclusions from the data but that doesn’t change its usefulness. Australia’s population growth slowing as migrant numbers fade With cuts to the migration intake, Australia’s annual rate


The underemployment question

Yesterday’s strong employment numbers from the ABS stoked an interesting debate in the comments about what degree of underemployment Australia suffers. To help the debate along I’ve drawn up the following table from the ABS Underemployed Workers report. It is annual only and from Spetember 2010 It clearly shows two things. First, that labour markets in


Cheering disaster

Aussie, Aussie, Aussie, Oi, Oi, Oi. Doesn’t sound like a currency column does it? Nor should it. But the question has to be asked as to why there is such triumphalism in the reporting of the Australian dollar’s move above parity and why has it intensified recently as we reached a new all time high.


We’ve lost our way

Over the weekend I was reading the local newspaper which contained a 3 page spread about  families who are struggling with day to day life because of the rising cost of living, mostly energy. In the same week it was determined that the new carbon tax would cost Australian families approximately $900/year and oil approaching


Leigh Harkness on Bank Welfare

Leigh Harkness is back with his unique perspective on the Australian macro-economy for another guest post, this time on “Bank Welfare”. Banks have prospered under the floating exchange rate system.  They have been able to lend as much as they like without any concern about affecting the balance of payments.  The exchange rate adjusts to



Sigh…I’m having an angry week. Regular readers will know that I’m no fan of vested interests. But I make one exception. Right now, the nation DESPERATELY needs a new vested interest body to support the non-resource tradable goods sectors of manufacturing, tourism and education. I can’t remember a peep out of either the education sector


Why Australians aren’t spending

Robert Gottliebsen today posted an interesting article on Business Spectator providing an insight into why Australians are cutting back on retail spending: Retailers have been looking closely at what is causing stress among Australians and among Australian consumers… Those in lower income suburbs or in areas where there are many high mortgage/low deposit new houses,


Building approvals smashed again

From the ABS today: TOTAL DWELLING UNITS The trend estimate for total dwellings approved fell 1.7% in February 2011 and is now showing falls for four months. The seasonally adjusted estimate for total dwellings approved fell 7.4% following a fall of 11.6% in the previous month. PRIVATE SECTOR HOUSES The trend estimate for private sector


Credit aggregates stumble on

The RBA’s credit aggregates for February continue their recent trends of a slow disleveraging. Month on month, owner occupier credit advanced a seasonally adjusted 6.9% annualised. Over the year it was the same. Investor credit slowed to its lowest growth rate since September 2009. Month on month and seasonally adjusted it grew 4.6% annualised. Over


Jobs point to restructure

The ABS released its Job Vacancies for February survey today. The overall release was a slight seasonally adjusted fall. More interesting is the industry split. The first chart below is for sectors with rising job ads for the month: And the second is for sectors with falling job vacancies for the month: This industry sector split


Gerry capitulation

Two weeks ago the well informed crew at Boganomics made the following statement. Just this morning, a stone tablet arrived on Gerry Harvey’s desk, informing him of both MyFind’s effort, and the dotcom crash of 1999. “Two sets of bad news for the broadbands”, mused Gerry. But if, by some miracle, the internet manages to


Leigh Harkness on debt saturation

In a follow up to his previous post please enjoy Leigh Harkness’s latest guest post on “Debt Saturation”. Many years ago, I tried to identify the relationship between money and inflation. I could not find a general rule for all situations, but for certain countries who adopted “pure” float, I found that inflation was equal


The aliens have landed

An alien has landed in Australia and is confusing the hell out of everyone. That alien’s name is lack of system growth. In the old system, as the pie got bigger, there were no losers, only degrees of winners. Corporations in Australia’s dominant finance, realty and retail sectors could swap 2 per cent market share


The economics of government service failure

Today I want to cover a topic that I have not discussed previously. I have often thought about posting on it but it wasn’t until I had a discussion on another thread that I realised how important the topic might be for others. The catch cry of the public is “why does the government waste


DJ’s blames Gaddafi

It’s always good to under promise and over deliver. And DJ’s has done just that in their half year result, posting a good result in depressed consumer circumstances of 4.2% profit growth amidst falling revenue. They also reaffirmed full year guidance of 5-10% profit growth. One has to seriously wonder, however, about the above caveat


ASIC’s insider

John Durie commented yesterday on likely changes in the leadership ranks at ASIC: ASIC chief Tony D’Aloisio formally advised staff today for the first time he would not seek a new term as corporate plod when his contract expires in May. The staff notice came in the wake of media reports over the weekend that


How Japan will hit local growth

I am surprised at the resilience of Australian equities to the global sell-off. Either the local market is confident that the crisis can be contained (for some reason I can’t fathom, it’s behaving irrationally, or, it has assessed any economic fallout from the disaster to be minimal for Australia and already priced in). The only


The safe haven meme

There’s more argument today that the Australian dollar is now a global safe haven currency, which, I must admit, agitates my innate cringe gene. Let’s see if there is any evidence. First, the following graph is the last six months of futures movements for traditional safe havens by percentage: The $US is green, Japanese yen is


More mangy data

There is more bad credit and sales data out today from the ABS. First, Motor Vehicle Sales: Trend – The February 2011 trend estimate (84 485) has shown a decrease of 0.3% when compared with January 2011. Seasonally Adjusted – The February 2011 seasonally adjusted estimate for new motor vehicle sales (84 122) increased by


Employment pop

Following today’s ABS Labour Force data for February, find below a series of charts indicating the state by state breakdown of full time jobs since early 2007. Everywhere other than WA had a nice pop for the month. This is raw data, which is why the aggregate increases are higher than the national figure quoted


Bad day for tough words

Houses and Holes noted today that the RBA looks as if it is trying to talk tough on interest rates. I assume that was before 11:30am when the ABS figures for housing finance appeared. JANUARY KEY POINTS VALUE OF DWELLING COMMITMENTS January 2011 compared with December 2010: The trend estimate for the total value of dwelling finance


Shocked consumers

In my previous post on Phil Lowe’s speech, I noted that the RBA is hawkish and clearly still concerned that consumers will binge as mining boom income passes through the economy. The killer quote was: Not unexpectedly, this decline in the relative price of manufactured goods has caught the attention of the household sector. In


Gittins! goes the full chunder

All right, this blogger is sorry. He’s tried to leave it alone. He’s willed himself to ignore it. But he just can’t let Gittins! get away with today’s technicoloured shocker. According to the paragon of baby-boomer supiority: The more economists examine it, the more they explode the seemingly self-evident truth that we’re living in a


Ken Henry’s lucky country

On Friday evening, Treasury boss Ken Henry delivered his final public address before stepping down in March. At the University of Tasmania Giblin Lecture, Henry delivered his magnum opus, a broad review of Australian economic history spanning three centuries (full transcript below, h/t The Lorax). The document is a must read in full, but the