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.


Melbourne grinds to a halt on population ponzi

By Leith van Onselen The most recent ABS demographic statistics for the March quarter of 2017 revealed break-neck population growth for both Victoria (read Melbourne) and New South Wales (read Sydney): Driven primarily by rampant immigration: This time last year, Infrastructure Partnerships Australia (IPA) released a report that used Uber driver information to measure “road


MP revolt over Sydney’s population ponzi deepens

By Leith van Onselen With NSW’s (read Sydney’s) population growing at a break-neck pace (see below chart), last month it was revealed that there was a revolt underway from within the NSW Liberal Party against the federal government’s mass immigration program and over-development across Sydney (watch video above). The most important quote from the video


Deloitte describes the Botox Boom

Via Deloitte: Investment Monitor: Investment outlook strengthens 31 October 2017: The outlook for business investment in Australia is healthier than it’s been for some time, according to the latest edition of Deloitte Access Economics latest Investment Monitor. Key points include • The overhang of engineering work that commenced construction during the mining boom has finally


Fruit pickers at centre of another slave labour scandal

By Leith van Onselen Since the 7-Eleven migrant worker scandal broke in 2015, there has been a regular flow of stories emerging about the systemic abuse of Australia’s various migrant worker programs. The issue culminated last year when the Senate Education and Employment References Committee released a scathing report entitled A National Disgrace: The Exploitation


God condemns Adani

Not even God wants the Adani mine, it seems: It may have the Turnbull and Palaszczuk governments firmly in its corner, but the Adani super-mine is facing a formidable new opponent: the Christian faith. The Catholic and Anglican bishops of Townsville have issued a joint statement to their followers criticising “projected mega-mining developments across Queensland, especially the Galilee Basin”, and


University professor hits out at falling university standards

By Leith van Onselen In the wake of the Productivity Commission’s latest Shifting the Dial productivity review report, Griffith University economics professor, Ross Guest, has joined the chorus lambasting the dilution of Australian university standards and the weakening of jobs prospects for graduates. From The AFR: Ross Guest agreed universities were overly focused on research and


Further ABS cuts to blind economy

By Leith van Onselen It is Groundhog Day at the Australian Bureau of Statistics (ABS). The organisation has already been savaged by funding cuts and jobs losses under the prior two governments (both Labor and Liberal), thus hampering its ability to perform its functions. Now, the ABS’ Forward Work Program 2017-18 foreshadows another 500 job


Why did the Productivity Commission ignore the key issue affecting Australians?

By Leith van Onselen Last week, I questioned why the Productivity Commission’s (PC) latest report, entitled Shifting the Dial: 5 year productivity review, failed to address Australia’s immigration settings despite explicitly acknowledging that: congestion costs are soaring across the major cities as rapid population growth overwhelms existing infrastructure; and the cost of expanding infrastructure has


Labor talks sense on free trade agreements

By Leith van Onselen For years, MB has criticised Australia’s free trade agreement (FTA) processes and outcomes, and campaigned for the Productivity Commission (PC) to rigorously assess any new deals before they are ratified by the government. While our pleas have fallen on deaf ears within the Coalition Government, it seems Labor is listening. From


Youth slave labour scheme exposed again

By Leith van Onselen Earlier this year, several labour market experts raised concerns about the proliferation of unpaid internships, which risked becoming a black market for slave labour. In July, the Turnbull Government controversially announced that it would expand its $750 million Youth-Jobs PaTH program – to prepare, trial and ultimately hire young Australians –


Chinese tide goes out on global commercial realty

Last week from Gottiboff: Significant parts of the Sydney apartment market and the associated apartment land markets have cracked and are now suffering serious falls. The level of decline is much greater than most were predicting three to six months ago. The repercussions of what has happened in Sydney will quickly spread to Melbourne, although


The young and the poor left behind by ‘booming’ jobs market

Cross-posted from The Conversation: The unemployment rate is as low as it has been in the past four years, yet low-skilled workers are still doing it tough. Training can help unlock job opportunities for many, especially in the expanding health and social assistance sector. A report from Anglicare paints an alarming picture for low-skilled, entry-level


5G: an expensive alternative to the NBN

Cross-posted from The Conversation: Will Australia’s National Broadband Network (NBN) face damaging competition from the upcoming 5G network? NBN Co CEO Bill Morrow thinks so. This week, he even floated the idea of a levy on mobile broadband services, although Prime Minister Malcolm Turnbull quickly rejected the idea. NBN Co is clearly going to have


Import, export prices signal terms-of-trade fall

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released export and import prices for the September quarter, which portends another fall in Australia’s terms-of-trade when the national accounts are released in early December. According to the ABS, export prices fell by 3.0% over the September quarter but were up by 14.2% over


Three-quarters of Australians want lower immigration, stable population

By Leith van Onselen Dr Bob Birrell and Dr Katharine Betts from the Australian Population Research Institute have released a new research paper examining Australian voters’ attitudes towards immigration, which is based on a random survey of 2,067 voters conducted from Monday 31 July 2017 to 17 August 2017. Below is the Executive Summary along


Australia’s future is DEFLATION

From the AFR: Weak wages, falling import prices and fierce retail competition have overwhelmed a spike in energy prices, putting downward pressure on inflation and cruelling prospects of any near-term Reserve Bank of Australia interest rate hike. Were it not for rising electricity and gas bills, as well as government-mandated “sin tax” hikes on alcohol and tobacco, inflation may


Hooray! New Melbourne suburb to absorb one month population growth

By Leith van Onselen On Sunday, Melbourne Planning Minister, Richard Wynne, was all over the media trumpeting a new suburb in Melbourne named Macaulay that would supposedly ease Melbourne’s housing affordability crisis. From the Herald-Sun: THOUSANDS of new homes will be built near Melbourne’s CBD as the Andrews Government prepares to battle housing affordability by


CPI in detail: Inflationary pressures well contained despite energy shock

By Leith van Onselen The Australian Bureau of Statistics (ABS) has released the Consumer Price Index (CPI) data for the September quarter 0f 2017 which, despite energy prices surging, registered both soft headline and underlying inflation. According to the ABS, headline CPI rose by 0.6% in the September quarter, well above the June quarter’s 0.2%