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.
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
Yesterday, Delusional Economics asked whether Fitch would consider downgrading the Australian banks after they lowered credit standards on mortgages to boost flagging loan demand. Today, Fitch reported that it is updating its mortgage default models, which are currently based on the performance of mortgages during the 1991 recession. The change in model methodology reflects the
The ABS housing finance figures for April out today are a mixed bag: The seasonally adjusted numbers are up but the downtrend remains firmly in place and investors are down on both measures. As my readers know, I prefer long running trends in raw data and if we take a look there the story is
Regular readers will know that I am in the process of building a new glossary of terms to help describe Australia’s dramatically evolving contemporary economy. I’ve just added another today and it suddenly occurred to me that it is time to make it official. Here is the whole dictionary thus far: Politico-housing complex The great public/private
ANZ job ads for May are out and got thumped. As usual, the accompanying commentary comes with the rhetoric of boom ahead. I think it’s about time we called this what it is: Futureboom. The worse the data, the bigger the Futureboom, it seems: Total job advertisements on the internet and in newspapers decreased by 6.5% inMay to
On Friday, the Australian Bureau of Statistics (ABS) released data on overseas short-term tourist arrivals and departures. Once again, it provided stark evidence that some of Australia’s domestic industries, in this case tourism and retail, are hurting badly from the high Australian dollar. The below chart plots the monthly tourist arrivals and departures to/from Australia
Yesterday’s retail sales were unequivocally strong with a print of 1.1%. This flies in the face of what we are hearing regarding arrears levels from the big banks, from retailers themselves, and the rise to an 11.5% savings rate in the national accounts. Hence, there was a lively discussion yesterday at MB about whether there could have been a
The AIG PSI (which tracks services economy activity) for May is out and shows a struggle on Main St: KEY FINDINGS ■ Activity levels in the services sector eased slightly in May, following a solid increase in April.The latest seasonally adjusted Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) fell by 1.6 points
ABS International Trade for April is out. Not much of a surprise with an ongoing strong surplus: APRIL KEY POINTS BALANCE ON GOODS AND SERVICES The trend estimate of the balance on goods and services was a surplus of $1,557m in April 2011, a fall of $47m on the surplus in March 2011. In seasonally adjusted
From yesterday’s National Accounts, here’s a stab at explaining why, despite the ongoing growth in the economy (ignoring the March quarter hiccup), there are so many folk that are clearly feeling the pinch. First, a graph of real gross national income: A few observations here. First, that extraordinary dip in 2008 looks like the way
The AUD rallied straight after the GDP result this morning and now sits at 1.0729, equally 3 year swap rates have risen 5 bps post number also suggesting that for currency and interest rate traders at least the GDP was not as weak as they had feared even if market economists got pretty close: Indeed
From today’s ABS National Accounts release we get an unsurprising wipeout. Down 1.2% quarter on quarter and up only1% year on year. Analysis to follow.
Last month the AIG PMI showed a hint of improvement suggested light at the end of the tunnel for manufacturing. Sadly, this month, it’s ugly. The RBA has its adjustment going just fine already. Manufacturing activity remained in negative territory in May with the seasonally adjusted Australian Industry Group-PwC Australian PMI® down slightly by 0.7 points to 47.7
Today I’m going to take issue with a couple of my fellow bloggers. I’m going to be optimistic, in a real sort of way. I write often on Dutch Disease, which is a very real problem and, in my view, poses a serious threat to our prosperity in the long term. This, however, can sometimes
The Economist magazine has published an article on the Australian economy entitled The next Golden State, which argues that with a bit of self-belief and the right policies, Australia could become the next California. Here’s an extract: IMAGINE a country of about 25m people, democratic, tolerant, welcoming to immigrants, socially harmonious, politically stable and economically
