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.
By Leith van Onselen The June quarter’s national accounts, released yesterday, revealed that Western Australia’s economy remains in a slump, with state final demand registering zero growth over the quarter and falling by 3.8% over the year: Western Australian workers continue to suffer big pay cuts, with real per capita wages & salaries declining by
By Leith van Onselen The Australian Bureau of Statistics (ABS) today released the national accounts for the June quarter, which registered 0.8% growth in real GDP over the quarter and a 1.8% rise over the year. On a per capita basis, real GDP rose by 0.1% over the quarter but was up by just 0.2%
The ABS has released June QTR national accounts and the news is Botox but no boom (given expectations had soared): JUNE KEY FIGURES Mar Qtr 2017 to Jun Qtr 2017 Jun Qtr 2016 to Jun Qtr 2017 % change % change GDP (Chain volume measure) Trend 0.7 2.1 Seasonally adjusted 0.8 1.8 Final consumption expenditure
The last four months of the Melbourne Institute monthly inflation reading have delivered a total of a a 0.3% rise. The CPI is still weak. The PPI is weak and going to get weaker on oil and the AUD. Next year it’s resumed terms of trade falls, house prices and the dwelling bust. And now
Mirabile dictu, peace has broken out between The Kouk and MB: Let me return the complement before we all blink and say The Kouk’s dovish positioning on the RBA is ahead of most in the market, including Phil Lowe. We’re in this together, I suspect, because we’re mutually disgusted by the war on wages.
It was headline news yesterday at the AFR: Australia Inc. employers have delivered workers the equal-best quarter of wages growing in 3 1/2 years, offering a glimmer of hope that a long slide in income growth is coming to an end. In news likely to be welcomed by the Reserve Bank of Australia, which says it has
By Leith van Onselen Last week, billionaire retailer, Gerry Harvey, pronounced that Australia would become an “Asian country” with a population of 100 million in the next century, saying there is “not a chance in hell” immigration can be dialed back. On Monday night, Harvey appeared on ABC’s The Business (video above), where he gave
By Leith van Onselen Monday’s June quarter Business Indicators release from the ABS, which feeds into the national accounts, confirmed that wages & salaries remain wildly divergent from business profits. As shown in the next chart, real business gross operating profits have boomed over the past year: And this stands in stark contrast to wages
Go Dick: Dick Smith is launching an advertising campaign against ABC TV news and current affairs, which he says has warped the debate he has tried to spur over Australian population growth. He claims both Labor and Liberal politicians have told him they agree that Australia needs to cut its immigration intake to avoid future
By Leith van Onselen Apparently I have it all wrong and Australia is not experiencing a turbo-charged immigration boom after all, according to a long-winded post by Aidan Morrison at the Quixotic Quant Blog [my emphasis]: The Population Ponzi story tells us that sometime in the mid-2000s the Howard government kicked the gate-open to mass
Via Westpac: Public demand is expanding at an above trend pace as governments commit to new investment projects. This theme was evident in Q2. Public demand grew by 2.2% in the quarter, adding 0.5ppts to quarterly GDP. We had expected a contribution of 0.3ppts. Investment jumped 6.7% in the quarter and consumption increased by an
Caixin service PMI: The Caixin China Composite PMI™ data (which covers both manufacturing and services) indicated that Chinese business activity growth picked up for the second month in a row during August. Furthermore, the latest expansion of activity was the strongest seen for six months, as shown by the Composite Output Index posting 52.4, up
Via Citi: SEK: 2/3 of growth from 1/3 of economy — Seek Australia job ads were +13% in Aug with most of the growth coming from just 7 of Seek’s 30 job categories. Trades & Services, Construction, Engineering, Mining, Manufacturing & Logistics, Government and Healthcare make up just 40% of Seek’s current ad inventory
From the ABS: JUNE KEY POINTS BALANCE OF PAYMENTS The current account deficit, seasonally adjusted, rose $4,808m to $9,562m in the June quarter 2017. There was a fall of $4,333m on the balance on goods and services, resulting in a surplus of $3,070m in the June quarter 2017. The primary income deficit rose $499m to
By Leith van Onselen Within today’s dump of balance of payments data that feeds into tomorrow’s June quarter national accounts release was the important news that Australia’s terms-of-trade has fallen (as expected), down by 6.0% in seasonally adjusted terms over the quarter but continuing to rise by 2.0% in trends terms: Over the year, the
Essential today: No change. And: The younger you are the less you reckon the “fair go” defines Australia and the less likely you are to challenge it! Go figure.
By Leith van Onselen I have noted previously that one of the key reasons why Australia’s high population growth (immigration) is lowering the living standards of existing residents is because of the strain that it places on infrastructure, which inevitably leads to more congestion on roads, public transport, as well as more expensive housing. Basic
By Leith van Onselen Two years after the 7-Eleven migrant worker scandal first broke, and the veritable conga-line of stories emerging about the systemic abuse of Australia’s various migrant worker programs, the bill to prevent worker exploitation has finally been passed by parliament. From The Canberra Times: Employers, particularly franchise chains, face stiff new penalties
From AIG: • The Australian Industry Group Australian Performance of Services Index (Australian PSI®) fell 3.4 points to 53.0 in August (seasonally adjusted). This signaled continuing growth, but at a more moderate pace than in July and with a greater variation in activity across the sub-sectors. Australian PSI® results above 50 points indicate expansion, with
Via The Australian: The government has been warned of a looming gap in the national electricity supply as coal-fired power stations shut down, highlighting the need for urgent decisions to build new generators that operate around the clock. …The government is shifting its focus to the reliability of new energy generators, as well as the
By Leith van Onselen The June 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
By Leith van Onselen The Australian Bureau of Statistics (ABS) today released its Mineral & Petroleum Exploration data for the June quarter, which both posted rises. Nationally, expenditure on minerals exploration rose by a seasonally-adjusted $39.3 million (+9.9%) over the June quarter: This increase was driven by WA (+$14.3 million) and QLD (+$10.2 million): The
ANZ job ads are out for August and are still firming modestly at 2% month on month and 13.6% year on year: This is still a modestly improving labour market but it is better than it was.
From ABS Business Indicators: JUNE KEY FIGURES Mar Qtr 17 to Jun Qtr 17 Jun Qtr 16 to Jun Qtr 17 % % Sales of goods and services (Chain volume measures) Manufacturing Trend -0.2 -2.7 Seasonally Adjusted 0.9 -2.8 Wholesale trade Trend 0.2 4.9 Seasonally Adjusted -1.6 3.3 Inventories (Chain volume measures) Trend 0.3 1.7
Michael Mrdak, the head of the Department of Infrastructure & Regional Development, delivered a speech at a forum organised by Infrastructure Partnerships Australia (IPA) whereby he lamented that public appetite for economic reform is at the lowest point he has seen for at least three decades. From The Australian: “I have not known a time
