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 now if you’re reading you ought to understand that the Australian economy operates on symbiotic halves. Our miners sell dirt to foreigners and our banks leverage that income in global markets to lend into huge domestic mortgages. When trouble strikes, the Federal Budget sits between them, taking in the commodity tax revenues, and guaranteeing
Why the cumulative CAD and offshore debt are both the cause of our prosperity and the downfall of the nation? Australia is locked into a debt feedback loop that can only stop with the end of the growth era and a system reset, and there’s nothing anyone in this country can do to stop it.
By Leith van Onselen While residents of Sydney and Melbourne are suffering from crush-loaded roads, trains, schools, hospitals, and prisons, as well as hideously expensive housing, toll road company Transurban is the front-runner to buy Sydney’s WestConnex toll road, which means it will own the bulk of Sydney’s toll roads. From The SMH: …one of
But it will always be there, via Bill Evans at Westpac: The Reserve Bank Board meets next week on May 1. The decision is certain to be to hold rates steady for another month. We do not expect to see any significant changes in the Governor’s Statement, although it will be interesting to see whether
By Leith van Onselen The Australian Council of Trade Unions (ACTU) has warned that the 11-nation Trans-Pacific Partnership (TPP) trade agreement will have “negligible” benefits for Australia, while it could result in significant job losses. ACTU secretary Sally McManus also says the trade deal will result in downward pressure on Australian wages and increase inequality.
Via the ABS: FINAL DEMAND (EXCL. EXPORTS) rose 0.5% in the March quarter 2018. mainly due to rises in the prices received for Electricity, gas and water supply (+3.4%), Heavy and civil engineering construction (+0.6%) and Petroleum refining and petroleum fuel manufacturing (+3.8%). partly offset by falls in the prices received for Pharmaceutical and medicinal
By Leith van Onselen Over the past few years, Australian Competition and Consumer Commission (ACCC) head, Rod Sims, has issued a spate of warnings about, and voiced opposition to asset privatisations. One of Sims’ key concerns is that consumers are being gouged as the new monopoly or oligopoly owners raise prices and extract rents from
It’s almost amusing watching a desperate Victorian Government with siding polls attempt to address the crush-loading of Melbourne. Last week we saw $10bn hosed into a new airport rail link of highly questionable benefit. Today we get trains, trains, trains: The final unfinished section of the “skyrail” through Melbourne’s south-east is due to open on
By Leith van Onselen MB has lobbied long and hard for the federal government to begin policing money laundering through property – something it promised to do more than a decade ago. Yesterday, The Australian reported that state governments may be facilitating money laundering by “chasing” proceeds of Chinese organised crime: John Langdale, associate professor at
By Leith van Onselen Immigration Minister, Peter Dutton, has launched another distraction from Australia’s unpopular mass immigration ‘Big Australia’ policy, calling for the immigration debate to be centred on “who we’re bringing in” and whether they are integrating, rather than on numbers. From The Australian: Mr Dutton said the numbers had decreased since Labor was in
By Leith van Onselen Dr Gavin Putland has published a research report for Prosper Australia, entitled Trickle-Up Economics Assessing the impact of privatized land rent on economic growth, which shows that since the Second World War, there has been a negative correlation between Australia’s total land price and the rate of economic growth, with rapid
By Leith van Onselen Productivity Commission (PC) chairman, Peter Harris, has taken a swipe at Australia’s growing list of bilateral ‘free trade agreements’ (FTAs), describing them as “generally pretty poor public policy” in a speech delivered to the European Australian Business Council (EABC): As most of you know well, the Commission strongly prefers that barriers
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released its Regional Population report for the 2016-17 financial year, which revealed that Melbourne remains the king of the population ponzi, adding an insane 125,424 people to its population in 2016-17, representing growth of 2.7%. Sydney’s population also surged by 101,558 people in 2016-17,
Via the excellent Damien Boey at Credit Suisse: We’re over-valued, over-supplied and in a perpetual supply-side labour shock. Our export income is deflating and so are our asset prices. There is only one way that Australian inflation is going and it ain’t up. Damien Bory at Credit Suisse has some charts on it today: CPI
Courtesy of Zero Hedge: Recall, that first overnight the company reported retail sales numbers that showed an unexpected reversal in growth across all geographic regions, with the all important Asia/Pacific region sliding from up 51% in January to just 31% in March. But it was the ominous guidance that the company gave on the 11am
Via BLD: Stock -8%. So, not so much the residential slowdown as one-off issues. At least that’s what they say. But the WA experience is going to spread east over the rest of this year so I wouldn’t be cautious buying the dip on this one:
By Leith van Onselen At the same time as former Canberra Times editor, Crispin Hull, made a robust case for lowering immigration, the Fairfax editorial was quick to pump out propaganda espousing that “immigration is key to our prosperity”. Let’s examine the main arguments. “There are many great cities much larger than any in Australia. Our
By Leith van Onselen Deloitte Access Economics partner, Chris Richardson, is the latest commentator to forecast rising wages growth and an improving Federal Budget: “Improving global and local economies are raining revenue”… “The globe is doing Australia plenty of favours. The bad news of huge falls in mining-related construction has passed, and the long-awaited pick
By Leith van Onselen Australian Competition & Consumer Commission (ACCC) chairman, Rod Sims, claims the banking royal commission’s revelations of misconduct in the financial services sector highlights the need for harsher penalties for corporate wrongdoing. Sims argues that such penalties should act as a real deterrent rather than merely being regarded by management and directors
By Leith van Onselen Economist Tim Colebatch has joined the chorus debunking the Australian Treasury’s propaganda report supporting mass immigration. From Inside Story: Buried in a Treasury report is the data that shows where most of the jobs are going. …the single biggest reason why high jobs growth has not reduced unemployment significantly is that
By Leith van Onselen First it was MB. Then it was Judith Sloan. Now The Australian’s Henry Ergas has joined the chorus slamming the Australian Treasury’s propaganda supporting mass immigration: …the goal of migration policy is not to increase population density for its own sake. Nor is its purpose to increase gross domestic product, or
By Leith van Onselen Professor Peter Whiteford has penned an article in The Conversation questioning the notion that Australia’s Millennial generation are really worse-off than their parents: …millennials might be feeling a little hard done by, but Australians aged from 25 to 34 have actually enjoyed increases in their incomes compared to the population average.
By Leith van Onselen Yesterday, Fairfax published an alarming report warning that Melbournians will have an extra five hours of peak our traffic congestion by 2030 as rapid population growth continues to overrun the city’s infrastructure: Drivers could spend 20 per cent more time sitting in traffic as congestion significantly worsens over the next 12
By Leith van Onselen Yesterday’s ABS labour force release for March revealed a weakening Australian youth labour market – i.e. those aged 15 to 24 years old. The trend headline unemployment rate rose from 12.41% in February to 12.47% in March: Total employment growth for those aged 15-24 years of age has also begun to
By Leith van Onselen It’s going to rain jobs, according to Fairfax’s Eryk Bagshaw: Future farmers, nurses and teachers are in for a jobs bonanza in the next six years as millions of baby-boomers retire to make way for a new generation of workers in rapidly expanding industries… Free trade agreements, an ageing population and
By Leith van Onselen As summarised earlier, the Australian Bureau of Statistics (ABS) today released its labour force report for March, which registered a 4,900 increase in total employment and a steady headline unemployment rate (still 5.5%). In trend terms, the unemployment rate rose marginally from 5.54% to 5.56%: Again, total employment rose by a
Just in from The ABS: A soft report on the surface, with jobs growth and hours worked remaining weak. Analysts expected 20,000 jobs growth over the month, so this was a big miss. Detailed report to come…
By Leith van Onselen You know Australia’s immigration intake is way too high, and that the community mood has turned, when even Bernard Salt – the self proclaimed “unabashed supporter of a bigger Australia” – believes Melbourne is growing too fast and argues that immigration needs to be moderated. From Nine News (here and here): Melbourne’s
By Leith van Onselen Let’s recall Prime Minister Malcolm Turnbull’s lies last week about the causes of Sydney’s and Melbourne’s population pressures: Malcolm Turnbull: The thing that is driving the increase in foreigners in Australia – which is included in this term net overseas migration (NOM) – is foreign students, who are not part of
By Leith van Onselen The Australian Bureau of Statistics yesterday released its overseas short-term arrivals and departures figures for February, which continued to show a trend rise in the number of inbound visitors, with Chinese arrivals continuing to boom. The number of short-term visitor arrivals rose a seasonal 30.2% in February in original terms, whereas
