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.


OECD: Australia’s labour market recovery among world’s best

The OECD has released its 2021 Employment Outlook, which included the below chart showing that Australia’s labour market rebound has been among the best in the developed world: Not only is Australia’s unemployment rate lower than the OECD average, but it is also one of only a handful of nations where the unemployment rate has


Recent lockdowns to cost economy $5b

Shane Oliver of AMP Capital estimates that the one-week extension of the COVID-19 lockdown of Greater Sydney will cost the economy an additional $1 billion. The first two weeks of the lockdown has already had an estimated cost of $2 billion. Oliver adds that the Australian economy faces an overall economic hit of $5 billion


NSW records another 38 COVID cases

NSW Health has recorded another 38 local COVID cases, taking total local cases to 385: NSW recorded 38 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night. — NSW Health (@NSWHealth) July 8, 2021 Of today’s 38 new locally acquired cases, 17 were in isolation throughout their infectious periods


Aussie job postings continue to push higher

Callam Pickering, economist at global jobs site Indeed, has released new job postings data for the Australian economy, which shows that job postings nationally are now 50% higher than pre-pandemic levels. Outside Victoria, job postings are up 53.1%, whereas Victoria’s job postings are up 45.0%: Interestingly, Sydney’s lockdown has yet to have any impact on


Which state has the tightest jobs market?

Earlier this week I presented the below chart showing that Australia’s jobs market was the tightest on records dating back to 1983, as measured by the number of people unemployed and underemployed per job vacancy: Specifically: There were only 1.9 unemployed people per job vacancy in May 2021, down from 3.3 immediately prior to the


Car parks rorts symptom of a wider problem

The Grattan Institute believes that the Morrison Government’s ‘car park rorts’ scandal is a symptom of a wider problem: that infrastructure projects tend to be rushed through without proper planning or scrutiny:  “Australia’s state and federal governments have developed a costly habit of rushing major transport projects to market… invariably the taxpayer is left to


RBA fights Morrison Government on wages

In yesterday’s Monetary Policy Decision, RBA governor Phil Lowe again reiterated the Bank’s central goal of driving unemployment and underemployment down and wage growth up. Lowe also explicitly stated that Australia’s closed international border to immigration has played an important role in tightening the labour market: The Australian economy is on a positive path. Output


Open-plan offices bad for productivity

Recent studies show that the overwhelming majority of Australians want to continue working from home some of the time, due mostly to the potential savings on commuting times and childcare costs. Yet politicians and vested interests like CBD property owners, the Business Council and the Property Council are trying to force Australians back to the


Australia’s jobs market tightest on record

The closure of Australia’s international border to immigration has done wonders for the labour market, which had suffered from a decade of stagnating real wages. As illustrated last month by CBA’s head of Australian economics Gareth Aird, the number of foreign residents employed in Australia has fallen dramatically over the past year, declining from 521,000


Rush on for elderly parent visas

The latest Intergenerational Report (IGR) from the Australian Treasury warned incessantly that Australia faces an ageing population timebomb in the decades ahead that will slow economic growth and derail the federal budget’s return to surplus. Given the Treasury’s bluster over an ageing population, it is hard to believe that policy makers still allow migrant Australians


Lockdowns smack consumer confidence

Via ANZ: Consumer confidence dropped 3.9% to its lowest level since the first week of April. The drop wasn’t confined to areas under COVID restrictions. It fell by 8.9% in Sydney and 1.6% in the rest of NSW. Brisbane (-7.7%), Melbourne (-2.7%) and Adelaide (-6.5%). #ausecon #auspol — ANZ_Research (@ANZ_Research) July 5, 2021


ANZ job ads still firm

#ANZ Australian Job Ads rose 3.0% m/m in June making it a record streak of thirteen consecutive monthly gains. Job Ads is up 39.1% on its pre-pandemic level and is consistent with an unemployment rate of 5%, just below the 5.1% recorded in May. #ausecon @cfbirch @arindam_chky — ANZ_Research (@ANZ_Research) July 5, 2021


Public service fat cats are symptoms of a wider problem

Fairfax published an article over the weekend showing that Australia’s public service executives are among the very highest paid in the world, dwarfing their counterparts in the United States: Analysis from The Sydney Morning Herald and The Age has found Australia’s top bureaucrats are earning vastly more on average than their international counterparts, with more


Ross Gittins: Abandon a ‘Big Australia’

I have been waiting for The SMH’s economics editor Ross Gittins to reenter the immigration debate following the release of last week’s Intergenerational Report (IGR) by the Australian Treasury. Today, Gittins arrived, calling for policy makers to bin aspirations for a ‘Big Australia’: Gittins says that a ‘Big Australia’ would lead to the “erosion of


NSW COVID outbreak grows to 309

NSW Health reports that another 35 local COVID cases were recorded over the past 24 hours, taking the total number of active infections to 309: NSW recorded 35 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night. Of these locally acquired cases, 33 are linked to a known case or


Meet Ronald Mizen, AFR’s new immigration shill

Australia has a new immigration shill working in the mainstream media: The AFR’s new economics correspondent Ronald Mizen. Mizen has today penned an article calling for Australia to lift Australia’s immigration intake to 327,000 people per year because it would supposedly be good for the economy and federal budget: Replacing migrants lost during the coronavirus


NSW COVID cases rise to 225

NSW Health reported another 31 locally acquired COVID cases, taking the total to 225. NSW recorded 31 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night, of which 27 are linked to previously confirmed cases. — NSW Health (@NSWHealth) July 2, 2021 Key points as follows: Of today’s 31