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.
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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
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 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. pic.twitter.com/LipFvnmVTG — NSW Health (@NSWHealth) July 8, 2021 Of today’s 38 new locally acquired cases, 17 were in isolation throughout their infectious periods
The Australian Bureau of Statistics (ABS) yesterday released a brand new survey on job mobility, which recorded the lowest rate of job switching on record: During the year ending February 2021: 975,000 or 7.5% of employed people changed jobs, the lowest annual job mobility rate on record Job mobility remained highest for professionals, at 21%
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
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
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
In his commentary to yesterday’s Monetary Policy Decision from the RBA, CBA’s head of Australian economics, Gareth Aird, warned that rebooting immigration back to pre-COVID levels is now the biggest risk to Australian wage growth: There is a risk that the RBA looks through any near term strength in wages growth if the Board puts
NSW Health has just reported 27 new locally acquired COVID cases over the past 24 hours, taking total active cases to 351: NSW recorded 27 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night. pic.twitter.com/pUprrXHpRE — NSW Health (@NSWHealth) July 7, 2021 According to NSW Health: Of today’s 27 new
Via AIG: The Australian recovery boom is ending. Return to stagnant normalcy ahead. Especially as borders reopen and the cheap foreign labour returns. Full report.
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
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
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
NSW Health has recorded another 18 locally acquired COVID cases over the past 24 hours, taking the total to 327. NSW recorded 18 new locally acquired cases of #COVID19 in the 24 hours to 8pm last night. Of these locally acquired cases, 16 are linked to a known case or cluster – nine are household
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
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 pic.twitter.com/K9NmqLtJbj — ANZ_Research (@ANZ_Research) July 5, 2021
New car sales lost momentum in June after bouncing back hard over the early months of 2021. According to the Federal Chamber of Automotive Industries (FCAI), 110,664 new cars were sold in June, up only 0.4% from June last year and 6.1% lower than June 2019. The next chart plots new car sales in rolling
#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 pic.twitter.com/Eat0lHQiiu — ANZ_Research (@ANZ_Research) July 5, 2021
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
According to Robert Gottliebsen, National Party leader Barnaby Joyce should take control of the partially completed Melbourne to Brisbane inland rail project and make it a national priority. This project, says Gotti, will enable freight from Melbourne and Brisbane to arrive in Sydney via Parkes, and will get heavy trucks off the Hume Freeway so
The NSW Government’s 2021-22 budget papers forecast it will net $41.6 billion in property stamp duties in the forward estimates to 2024-25. But economists told The AFR that NSW will not be able to match the money it is tipped to make from stamp duties over the next four years if it proceeds with its
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
The ABS has released retail sales data for May, which rose by 0.4% over the month (versus 1.3% in April). Over the year, retail sales were up 7.7%: Food and cafe spending continues to dominate: Whereas five out of eight jurisdictions recorded rising sales: The next chart from Callam Pickering is instructive and shows that
Roy Morgan Research has released its labour market survey for June, which recorded an unemployment rate of 9.4% (down from 10.3% in May) and an underemployment rate of 8.5% (down from 8.6% in May). This was from a 305,00 increase in employment to a record high 13.37 million Australians: Australian employment increased by 305,000 to
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
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
Via AIG: Boom topping out. Full report.
By Gareth Aird, head of Australian economics at CBA Key Points At the July Board meeting the RBA will announce a decision on yield curve control and the bond buying program. We expect the RBA to maintain the April 24 bond as the target bond for yield curve control (i.e. not shift to the Nov
By William Bourke, President of the Sustainable Australia Party On 28 June, the fifth ‘Intergenerational Report’ (IGR) was finally released. After a long delay, Federal Treasurer Josh Frydenberg and the Treasury lay it all out. The problem is the IGR is based on one big lie. Treasurer Josh Frydenberg outlines how 30 years ago, for
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. pic.twitter.com/Uiwda2a5SQ — NSW Health (@NSWHealth) July 2, 2021 Key points as follows: Of today’s 31
