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.


Parliamentary inquiry demands action on migrant slavery

By Leith van Onselen More than two years after the 7-Eleven migrant worker scandal first broke, and 21 months after the Senate Education and Employment References Committee released its scathing report entitled A National Disgrace: The Exploitation of Temporary Work Visa Holders, the final report of the parliamentary inquiry into modern slavery has released its


Australia’s dodgiest CEOs whine about “trust deficit”

Shameless, out-of-touch and delusional: “Many Australians believe neither government nor big business are listening to them,” Origin Energy chief executive Frank Calabria told the annual survey of 52 top chief executives compiled by The Australian Financial Review’s Chanticleer columnists. …Outgoing Commonwealth Bank chief executive, Ian Narev, said business needs to change its message if it is to win


Population ponzi to double household water bills

By Leith van Onselen Back in July, it was reported that Melbourne’s water storages could dry-up as the combination of climate change meets rapid immigration-fuelled population growth: Melbourne could begin to experience chronic water shortages within about a decade, even if the desalination plant is cranked up to its full capacity, as climate change and


FIRE sector vampire continues to bleed its host

By Leith van Onselen Wednesday’s national accounts release for the September quarter confirmed that Australia’s FIRE economy – Finance, Insurance and Rental, Hiring & Real Estate Services – continues to bleed its host, rising to a new record high (11.9%) share of the Australian economy: Since financial markets were first deregulated in the mid-1980s, the


Australia’s trade surplus evaporates in October

By Leith van Onselen The Australian Bureau of Statistics (ABS) today released trade data for the month of October, with Australia’s trade surplus evaporating to $105 million from $1,604 million (revised) in September In seasonally adjusted terms, exports fell $903 million (3%) to $31,871 million in October, whereas imports rose $596 million (2%) to $31,766


Wages Frankenstein visits upon Racism Rob

From card carrying population ponzitier and fake Lefty, Rob Burgess: As described previously, flat-lining wages are feeding into very poor retail sales figures, and both need to rebound if Australia is to genuinely complete the transition from the mining investment boom era to a more balanced period of growth. At face value, the national accounts might


Botox Boom drives construction PMI

From the AIG: ▪ The seasonally adjusted Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) increased by 4.3 points to 57.5 points in November. This signalled a tenth consecutive month of industry expansion and the highest pace of overall growth in four months (readings above 50.0 points indicate expansion with higher


Scott Morrison blathers as ABC questions population ponzi

By Leith van Onselen Last Night, ABC The Business’s Carrington Clarke did a fantastic job painting Scott Morrison into the corner over Australia’s insane population growth (immigration), asking the treasurer to explain why the government is running a mass immigration program when wages growth for the average worker is going backwards after inflation. The key


Would you make consumers poorer then rely on them to spend?

No, you wouldn’t. Because you’re not stupid. But that’s the RBA and Treasury strategy for Straya in 2018. First, the Real Estate Treasurer: Treasurer Scott Morrison said the “positive set  of numbers” had been driven by investment from the public and private sectors. “Our growth story is primarily an investment story,” he told reporters in Canberra on


MB population ponzi primer presentation

Over the coming weeks weeks, MB will roll out a series of primer presentations on various key topics, which are aimed at getting newer readers up to speed, as well as providing an easy-to-digest reference point. Today’s presentation covers Australia’s population ponzi – a key theme that has been thrashed-out on MB over recent years.


GDP in detail: Per capita crush

By Leith van Onselen The Australian Bureau of Statistics (ABS) today released the national accounts for the September quarter, which registered 0.6% growth in real GDP over the quarter and a 2.8% rise over the year. On a per capita basis, real GDP rose by 0.2% over the quarter and was up by just 1.3% over the


How to never have an Aussie recession. Have an endless personal one

By Leith van Onselen Sarah Hunter, head of Australia macroeconomics at BIS Oxford Economics, has hosed concerns about the Australian economy slipping into recession, arguing Australia will continue to outperform other economies. From The AFR: Australia is likely to lag the current global economic uplift, but strong population growth and a fundamentally resilient economy should


Household financial confidence continues swan dive

By Martin North, cross-posted from the Digital Finance Analytics Blog: Digital Finance Analytics has released the November 2017 results from our Household Financial Security Index. The index uses data from our household surveys to assess households level of financial comfort. The index fell to 96.1, which is below the 100 neutral metric, down from 96.9


Credit Suisse: Brace for Australian GDP shocker

Via Credit Suisse: Disappointing government spending and trade data Trade and government spending data were very disappointing: 1.    Net exports contributed 0% to 3Q real GDP growth, compared with initial expectations for an 0.25% boost. The downgrade to the trade data brings the official estimates back in line with port data which reveal a collapse in


Ponzi Pete goes gaga for growth

By Leith van Onselen Open borders extremist, Peter Martin, has penned an article hailing the “powerhouse” Sydney and Melbourne economies, which supposedly have delivered two-thirds of Australia’s economic growth in 2016-17: Sydney has become Australia’s economic powerhouse, accounting for almost half of Australia’s economic growth. The extraordinary figure of 41.2 per cent is the highest


Energy shock 2.0 scheduled for New Year

Via the Herald Sun: VICTORIA’S biggest energy retailer is the latest to confirm plans to push up power prices in the new year. AGL has revealed its default electricity tariffs are set to jump an average 9.5 per cent from January 1 — but pledged to shield many of its standing offer customers from the


Australia’s terms-of-trade retraces for second consecutive quarter

By Leith van Onselen Within today’s dump of balance of payments data that feeds into tomorrow’s September quarter national accounts release was the important news that Australia’s terms-of-trade has fallen (as expected), down by 0.4% in seasonally adjusted terms over the quarter and by 2.1% in trends terms: Over the year, the terms-of-trade rose by


Vic population ponzi crush-loads V/Line trains

By Leith van Onselen Remember this chart? It shows that Victoria’s population surged by an all-time high 149,374 people in the year to March 2017: And remember how the Liberal Opposition pledged to shift Melbourne’s population growth to Victoria’s regions in a bid to take pressure off both housing and infrastructure in Melbourne? Well, it


Services PMI remains lackluster

From the AIG: • The Australian Industry Group Australian Performance of Services Index (Australian PSI®) lifted 0.3 points to 51.7 in November (seasonally adjusted), indicating a similar pace of slow growth to October. Australian PSI® results above 50 points indicate expansion, with higher numbers indicating stronger rates of growth. • Four of the five activity


The decade long slump in wages & salaries rolls on

By Leith van Onselen The September quarter Business Indicators report, released yesterday, includes aggregate wages & salaries data, which according to the ABS measures “gross earnings before taxation and other deductions” and “includes provisions for employee entitlements”. In order to get a better sense of how this data is tracking, I have deflated these aggregate


Monthly job ads, inflation moderate

ANZ jobs were out today: Still a weak cycle but firm at least for now. I fear the Botox Boom will slow into mid-next year. Melbourne Institute monthly inflation was also out at 0.2 month and month and 2.7% year on year. Its recent correlation with the CPI has been poor: There a few bigger


Mineral exploration rises, petroleum exploration falls

By Leith van Onselen The Australian Bureau of Statistics (ABS) today released its Mineral & Petroleum Exploration data for the September quarter. Nationally, expenditure on minerals exploration rose by a seasonally-adjusted $1.8 million (+0.4%) over the September quarter: This increase was driven by QLD (+$8.4 million): The various components, which are presented below in non-seasonally