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.
Another weekend of musing. Ideology revisit Back in April I wrote a piece on economic ideologies and how they can effect the decisions of policy makers and economists alike. Over the last week on MacroBusiness I have also noticed a number of threads that seemed to have swerved into discussions between holders of differing ideologies,
Today’s piece is inspired by the comment flow that was associated with yesterday’s piece on the RP Data – Rismark release. Specifically a little bit of apparent angst about a claim we made that, we have modelled the relationship between the quarterly moves in the ABS house price data series and the total monthly value
The RBA has just released its Financial Aggregates for May. It is more of the same with credit growth remaining subdued, with housing credit growing at the slowest rate in 35 years of current data and at a three month annualised pace of just 5.2%. Below is a summary of the RBA’s release with charts of
The latest Department of Employment and Workplace Relations skilled vacancies report provides us with yet another weak leading indicator of employment growth. According to the latest report the trend growth in skilled vacancies fell to 2% from a month earlier where it registered a fall of 1.9%. However if we take a look at the
Yesterday dissolve released their latest business stress test report ( available below ) and as expected, well at least by macrobusiness , the finding weren’t good. The quarterly cost of All Bank New Asset Impairment Charges (or “Bad Debts”) for Australian Banks in the Quarter to March 2011 is $5.1 billion. That is a drop from the
Guy Debelle , the Assistant Governor (Financial Markets) of the RBA gave a speech this morning to the Conference on Systemic Risk, Basel III, Financial Stability and Regulation. Today I am going to talk about a few interrelated issues concerning the banking system: collateral, funding and liquidity. The financial crisis brought into sharp relief the
The climate change proponents are clear on the matter. We need a “price” on carbon so the market can set about fixing the problem. Great. More derivatives. Exactly what we don’t need and yet another excuse to avoid the difficult job of governing. Consider what happened when there was a “price” on risk, perfected in
The media’s response to the reported slowing of Australia’s population growth on Thursday summoned the usual hysterical commentary from those concerned about skills shortages and the flow-on impacts to wages growth and inflation. For instance, the usually reliable Tim Colebatch made the following comments in an article published yesterday in Fairfax [my emphasis]: NET migration
Since most of the MacroBusiness crew are under the weather, I thought I’d stick my oar in this weekend with some quiet musings. Two things to consider in this post: the notion of sound economic language, and how would you allocate $2 million for your retirement? Language is for the Birds Houses and Holes recently
The Australian Bureau of Statistics (ABS) has just released its latest population figures, and it shows Australia’s population growth rate for the 2010 calender year slowing to only 1.5%, 0.7% below the peak growth rate of 2.2% reached in the 2008 calender year. Here’s the ABS media release and summary data relating to the release: MEDIA
The venerable economists of the Melbourne Institute released their quarterly Household Financial Conditions survey yesterday and jeez we are unhappy. In fact, we were happier about our state of financial health in the midst of the greatest global economic crisis since the Great Depression: The press release added that: According to Dr. Edda Claus “the
The Melbourne Institute/Westpac Leading Indicators Index is out today and shows that growth momentum in the economy has slowed. From the release (full report below): 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 2.7% in April 2011 below its long term
After last week’s sectoral chartathon for employment, I thought I’d go back to the first quarter national accounts and see where production is headed sector by sector. The ABS’s Gross Value Added (GVA) is the simplest way to measure the sectoral contribution to GDP. The result is the above chart, which shows a number of interesting
The Lowy Institute today released a study into Chinese attitudes towards investing in Australia. The research makes for sobering reading. In my view, we have made a complete hash of FIRB, to the point where its secret operations more resemble an arm of ASIS than they do a transparnent foreign investment review panel. The report
Last week, the Unconventional Economist made a fascinating comparison between the rhetoric of the Canadian and Australian central banks on overvalued houses. He noted how much more candid the Canadian central bank has been about the degree of house price overvaluation and the need to mitigate those risks. As we know, neither the government nor
My, that was a quick week. A couple of things in the thinker this weekend. The see-saw After a very successful muse last weekend about the economics of Futureboom! I have been thinking a little more on the intricacies of what I can see happening in the macro-economy. Glenn Steven’s speech posted by H&H this
Today the ABS released its quarterly Labour Force Survey – Detailed for May. I’ve broken it up into a series of sectoral charts by full time jobs below. Each says it ends in March but it don’t. Each ends in May, damnit. First up, let’s look at the growing sectors. Top of the pops is,
Governor Glenn may still be feeling feisty about the economy but it’s becoming increasingly obvious that he’s flying solo. ABS May car sales are out and can only be described as a crash, down 7.6% month on month and 14.5% year on year. These sales levels were first seen in 2003 and again in December
ABS March quarter dwelling commencements are out and show an onging decline in housing commencements, which is still a give back following last year’s FHOG. For apartments, however, there’s a big seasonally adjusted jump: MARCH KEY POINTS DWELLING UNITS COMMENCED The trend estimate for the total number of dwelling units commenced fell 1.9% in
The Westpac/Melbourne Institute Consumer Confidence Survey is out and makes dour reading. Sentiment fell by 2.6% in June from 103.9 in May to 101.2 in June. The commentary is equally gloomy: This is a soft result. It is the lowest print for the Index since June 2009 (100.1). At that time households were relieved that Australia appeared
So, ABS lending finance is out and its ugly too. Here’s the key points: APRIL KEY POINTS APRIL 2011 COMPARED WITH MARCH 2011: HOUSING FINANCE FOR OWNER OCCUPATION The total value of owner occupied housing commitments excluding alterations and additions fell 1.1% in trend terms, while the seasonally adjusted series rose 6.3%. PERSONAL FINANCE The
The May NAB Business Survey is out and is a bit of a shocker. Here are the key stats, with everything falling: And the commentary: The domestic economy continued to soften in May, with business conditions now just a little above the relatively weak levels recorded in February immediately following the floods. Trading conditions, employment
Following the ‘debate’ over the Resource Super Profits Tax (RSPT) last year, Robert Gottliebsen described how: Here at Business Spectator, Alan Kohler, Stephen Bartholomeusz and myself realised that Rudd and Swan had made a diabolical mistake soon after it was announced. We decided to highlight every aspect of this terrible measure until it was changed. And they
Another weekend, another whirling of things around my thunktank. I am pretty busy this weekend so here’s a few short thoughts. FutureBoom! economics One of the things we talk a lot about at MacroBusiness, which tends to spark many “interesting” discussions, is the effect of the mining boom on the economy. I can’t really add
So, we are about to enjoy another batch of mining advertisments on our televisions and in our cinemas. Given the political motivation of the last round of ads in 2010, addressing the then proposed Resource Super Profits Tax (RSPT), I thought it might be worthwhile taking a look at this new generation of ads and
The ageing of the large baby boomer generation is viewed as a huge problem for government finances in the developed world. A working paper released last year by the Bank for International Settlements (BIS) forecast large and rising future costs relating to the ageing of their populations unless drastic measures are taken to curb the rapid growth of health care and pension obligations (see
Below find the state by state break up of full time jobs, all seasonally adjusted. Weakness in NSW, QLD and SA is not sufficiently offset by gains in VIC and WA for a total fall of 22,000. The RBA’s adjustment to Quarry Australia continues apace.
Well…there is now no doubting the message that the NAB Business survey employment index and the recent turn in the ANZ job ads survey have been sending: employment has softened considerably. Today’s employment data was up 7,800 in May against the markets expectation of +25,000. But the sting was both in the break up between full
MAY KEY POINTS TREND ESTIMATES (MONTHLY CHANGE) Employment increased to 11,444,200. Unemployment decreased to 588,400. Unemployment rate steady at 4.9%. Participation rate steady at 65.6%. Aggregate monthly hours worked increased to 1,602.5 million hours. SEASONALLY ADJUSTED ESTIMATES (MONTHLY CHANGE) Employment increased 7,800 (0.1%) to 11,440,500. Full-time employment decreased 22,000 to 8,027,100 and part-time employment
The Reserve Bank released its latest Chart Pack yesterday. As a technical analyst/chartist, I prefer a visual representation of data and have always found this series of charts fascinating. The whole pack can be downloaded here (1.28 mB or so) or viewed by section here. Although it covers many areas, I’m going to look at
