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.
Via Deloitte today: Retail Forecasts: little Christmas cheer but some promise in 2020 9 December 2019: It has been a tough year for the retail sector so far in 2019, and the upcoming festive spending will likely do little to change that underwhelming result. Weak wage growth, high debt levels and increasing price pressures are
Inside Story’s Tim Colebatch has penned a ripping article on how Australia’s economy is forecast by the International Monetary Fund (IMF) to lag the world’s 12 largest developed nations on per capita GDP growth: …the International Monetary Fund is forecasting that in 2020 Australia will have the highest growth rate in GDP (gross domestic product)
The Bank for International Settlements (BIS) has released its global household debt data for the June quarter, which again ranks Australians as the second most indebted in the world. The next table summarises the ratios of household debt to GDP: As you can see, Switzerland (131%) takes the gold medal in the global household debt
More consumer warnings: The failure of car sales to turn is one strong indication of how conservative the consumer feels.
Last week’s national accounts data dump for the September quarter was another kick in the teeth for Australian households. Various measures of incomes revealed that Australian households have experienced near zero growth in real incomes over the past seven years. First, real per capita wages & salaries nationally are 3.7% below their June 2012 peak:
Businesses incessant claims about ‘skills shortages’ has been shattered again, with university graduates taking 2.6 years after graduation to land a full-time job, according to a recent report from the Foundation for Young Australians: The proportion of young Australians in full-time work prior to age 25 has also declined markedly over the past 30 years.
A fortnight ago I reluctantly shifted from my Telstra BigPond cable broadband service to the same priced NBN 50 service after being warned that my existing cable service was about to be switched off. As I noted at the time, I experienced an immediate downgrading in my internet download speed from the following (taken immediately
Shadow treasurer Jim Chalmers will urge the federal government to address issues such as low wages growth, underemployment and falling productivity in its mid-year economic outlook. He will tell a Chifley Research Centre conference that the economy is not working for ordinary Australians, while warning of the dangers associated with the rise of populism. From
Australia’s production, as measured by aggregate real GDP, continues to diverge wildly from the growth (or lack thereof) in ordinary Australian’s living standards. To illustrate why, I have once again deflated three measures of the domestic economy, as provided in the September quarter national accounts (released yesterday), by the ABS’ population data, in order to
Five months ago, ahead of the Morrison Government’s tax cut package passing the Senate, Treasurer Josh Frydenberg was confident tax cuts would pump-prime the economy by juicing household consumption: “The tax cuts are equivalent to two 25 basis rate point cuts. So they’re not insignificant. It’s billions of dollars into the economy”… “They will add
Via the excellent Damien Boey at Credit Suisse: Trade data came in below expectations. The surplus declined to $4.5 billion in October from a downwardly-revised $6.8 billion. Interestingly, the decline in the trade balance, and downward revisions to prior months’ data, have brought the official data back to be much more in line with unofficial
Ah construction or, more to the point, lack of, via the AIG: Look at employment and new orders: If we break new orders down it is fugly: Houses, apartments, offices, bridges and roads all going bust at once. A universal building bust that we warned about for a year yet here we are. Unemployment is
And now for a terms of trade shock. Just what an income denuded, surplus-obsessed, stall speed economy does not need. Yesterday’s trade balance numbers finally registered the inevitable as it fell from a surplus of $6.8bn to $4.5bn on the back of clubbed bulk commodoty prices: This is just the beginning. My base case for
Let’s start the parade of bad ideas with Gottiboff: Our largest state, NSW is the country’s engine room, but it has a crazy property development approval system designed to create uncertainty and boost costs. Victoria has a deep energy crisis that makes both consumers and business nervous. Victoria creates an artificial gas shortage by banning
It’s been more than three years since the Senate Education and Employment References Committee released its scathing report entitled A National Disgrace: The Exploitation of Temporary Work Visa Holders, which documented the abuses of Australia’s temporary visa system for foreign workers. And still the exploitation continues with a large supermarket pizza manufacturer the latest to
The Australian Bureau of Statistics (ABS) today released trade data for the month of October, with Australia’s trade surplus retracing to $4.5 billion from $6.8 billion in September: The next chart shows that Australia’s trade surplus is still running at strong levels: In October, exports (credits) fell and imports (debits) rose: In seasonally adjusted terms,
A spokesman for the Fair Work Ombudsman (FWO) has confirmed that it is undertaking an investigation into fast-food chain Grill’d, which has previously attracted scrutiny for allegedly underpaying its staff. Some former Grill’d employees also claim that it is using a compulsory retail and hospitality industry training program to legally pay wages that are below
The September quarter retail sales data from the Australian Bureau of Statistics (ABS) revealed the first annual decline in retail sales volumes since the early-1990s recession: Now, the ABS has released retail sales figures for the month of October, which recorded zero growth in the value of retail sales over the month in seasonally-adjusted terms,
Every quarter I like to look at the changes in Australian GDP and which categories are responsible for the growth / decline. Each bubble represents a category of GDP proportionate to its size, colours represent the growth rate. Click the charts for a large version and commentary: This quarter the key takeaways include: Federal Government
The NSW regional city of Tamworth is currently facing Stage 4 water restrictions, with the Chaffey Dam at just 15.6% capacity after experiencing record low inflows. Today, The SMH reveals that Tamworth has sucked the Peel River dry: The once-proud Peel River – also described as a “glorified creek” by those who know and love
Congratulations. L-plate Treasurer Josh Recessionberg has done it: “The government’s goal has always been to be that to put more money in the pockets of the Australian people and it is their choice as to whether they spend or save it. “If people pay down their debt, then ultimately in the long run, they will
Monday’s September quarter Business Indicators release from the ABS, which feeds into today’s national accounts, showed that wages & salaries remain wildly divergent from business profits. As shown in the next chart, real business gross operating profits continued to boom in the year to September: Whereas, there remained a huge gulf between wages & salaries:
The recent flow of macroeconomic data supports the view that Australian households are in recession. The September quarter retail sales figures from the Australian Bureau of Statistics (ABS) revealed that retail sales volumes declined for the first time since the early-1990s recession, falling by 0.2% year-on-year: Yesterday’s new car sales for November, released by the
Via the excellent George Theranou comes the fruition of Recessionberg: Q3 GDP slowed to 0.4% q/q after 0.6%; but edged up to 1.7% y/y after 1.6% Q3 real GDP unexpectedly slowed to just 0.4% q/q (UBS 0.5%; mkt 0.5%), albeit after an upwardly revised 0.6% in Q2 (was 0.5%). Hence, the y/y ticked up to
Via Martin North: We continue to release the data from our household surveys to end November 2019. Today we look at our Household Financial Confidence Index, which examines how households are feeling about their financial status, relative to a year ago. The index dropped again to 83.5, which is a new low in the series,
The Australian Bureau of Statistics (ABS) today released the national accounts for the September quarter, which registered soft 0.4% growth in real GDP over the quarter and just 1.7% growth over the year. On a per capita basis, real GDP was flat over the quarter, and rose a mere 0.2% over the year. According to
In September last year, ACCC chairman Rod Sims explicitly warned state governments against accepting unsolicited bids for infrastructure projects because they generally lead to “higher costs for taxpayers, drivers, or both”: “The ACCC considers that state governments should only award new toll road concessions through a competitive bid process, and not following an unsolicited proposal
Hoocoodanode? September key figures Seasonally adjusted, percentage change (a) Jun 18 to Sep 18 Sep 18 to Dec 18 Dec 18 to Mar 19 Mar 19 to Jun 19 Jun 19 to Sep 19 Sep 18 to Sep 19 Chain volume GDP and related measures (b) GDP 0.3 0.2 0.5 0.6 0.4 1.7 GDP per
The ABS released September QTR balance of payments yesterday and it threw up the largest quarterly current account surplus on record in both dollar and percentage of GDP terms: Even the annual figure turned positive: Though is less impressive (so far) in annual terms: It will likely also set recrods in the December quarter though
Via the AIG: Apparently retail is booming. Or not, according to the CBA version: Full report.
