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.


Leading indicators sing a gloomy tune

Two leading indexes for Australia are out this morning and both sing a gloomy tune for April. The Westpac/Melbourne Institute version rose slightly but remains quite depressed: 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 0.2% in April 2012, well


New car sales bounce

The ABS has released April new car sales and they show good growth up 2.4% up in May from April and 22.4% year on year. Here’s the month on month chart: Of course, there always a catch and today it’s a big one, most obvious in the year on year chart: See that last big


A bullhawk departs this earth

Don’t say I didn’t warn you. When the GDP figure came out two weeks ago I advised going long bullhawk rhetoric. Last week we were subjected to some extraordinary drivel at Business Spectator, where the bullhawks make their nest, and today another feathered bovine screetches completely free of this earth and into a fantasy world of unicorns,


The despair of Ross Gittins

Last week Ross Gittins suggested we all throw in the towel vis-a-vis understanding the economy and today he follows through in a convulsion of public despair: The release of two downbeat indicators of business and consumer confidence last week serves only to deepen the puzzle over the gap between how we feel and what the objective


Innovation schminnovation

From the AFR: The innovation community is aghast that the new research and development (R&D) tax credit is being considered for cuts even before the end of its first year of operation on June 30. The credit is one of the options that could go in order to fund a company tax cut, being considered


Roy Morgan Business Confidence sags in May

Not that we especially needed reminding but according to Roy Morgan, business confidence fell significantly in May: Business Confidence in Australia dropped 6.4pts in May 2012 to 105.8, down from 112.2 in April and is now at the lowest level since August 2011. These are the latest findings from the Roy Morgan Research Business Confidence


Austerity beckons Queensland

I mentioned earlier this month that the new Queensland Liberal government’s cost cutting program had begun including what appears to be a fairly substantial purge of the public service. As far as I am aware this is ongoing and more recently Campbell Newman, the state Premier, has been softening up the state for more cuts: Mr


Where are the jobs?

Yesterday the ABS released its quarterly detailed Labour Force report which gives us chance to peer into the sectoral trends of employment. A couple of standout results included: Mining adding 25.5k jobs in the quarter and 58k over the year. Now at 275k total. Education and training was up 30k in the quarter but only


Job loss expectations jump

From Westpac and the Melbourne Institute comes the unsurprising result that consumer expectations for inflation have tanked in June and expectations for job losses are reaching some pretty alarming levels, completely ignoring happy ABS figures employment figures. Inflation expectations moderate & unemployment expectations deteriorate, adding to the case for additional interest rate cuts The Melbourne Institute


Productivity now!

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


Mineral exploration explodes in WA

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


Rate cuts bomb with consumers

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


Moody’s affirms Australia’s AAA

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


Can deflationary growth continue?

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


Roy Morgan consumer confidence bounces

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


Australian cities gouge expats

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


Pascometer burns red on “the bubble”

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


Moody’s skeptical on the NSW Budget

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%


Not different, lucky

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


Trade deficit corrects

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:


Are we a banana republic?

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


News to buy Business Spectator?

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,