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.


Australia’s terms-of-trade surged in Q1

By Leith van Onselen Within today’s dump of balance of payments data that feeds into tomorrow’s March quarter national accounts release was the important news that Australia’s terms-of-trade jumped by 3.1% in seasonally adjusted terms and by 3.2% in trends terms: Over the year, the terms-of-trade rose by 6.1% in seasonally adjusted terms and by


Australian productivity falls from low to zero

Via the PC: Labour and capital inputs explain much, but not all, of the economy’s growth in output. The residual source of growth — MFP — captures all other factors that influence output, including improvements in dynamic efficiency, measurement error, and structural changes in the economy. Economy-wide MFP grew by just 0.4 per cent in


The lost decade of wages rolls on

By Leith van Onselen The March quarter Business Indicators report was released by the ABS, which includes aggregate wages & salaries data, namely “gross earnings before taxation and other deductions” and “includes provisions for employee entitlements”. In order to get a better sense of how Australian workers are faring, I have deflated this aggregate nominal


How universities milk the international student ‘cash cow’

Last month’s Four Corners report on Australia’s $35 billion international student trade described the industry as a “cash cow” that is being milked by Australia’s universities for easy profit: “In terms of attracting international students, universities will do whatever they need to do…they are the cash cows. There is no doubt about it.” Academic Last


ANZ job ads crash

From ANZ: ANZ Australian Job Ads plummeted in May, but recovered strongly in the last week of the month. We think this indicates much of the decline for the month as a whole was due to the April ‘holiday year effect’ and the timing of the election. In seasonally adjusted terms, job ads fell 8.4%


Roy Morgan business confidence soars after Coalition victory

By Leith van Onselen Roy Morgan Research has released its Business Confidence Survey for May, which reveals that confidence surged after the Coalition’s unexpected election victory:   Roy Morgan Business Confidence jumped 11.5pts (+11.2%) to 114.4 in May in a month in which the L-NP Government was re-elected against the expectations of many. The increase


War erupts over international student English standards

Earlier this year, Victorian Premier Daniel Andrews called for a review of university English-language standards out of concern that many international students were struggling to keep up with their peers, were placing intense strain on both university lecturers and teaching staff, and were eroding the overall quality of education provided at Australia’s universities: “International students are


Construction job ads fall 25%. Worse to come

By Leith van Onselen The latest dwelling construction data has painted an ominous picture for Australia’s jobs market. Earlier this week, the ABS released its Value of Construction Work Done data for the March quarter, which showed that residential construction activity fell for three consecutive quarters, down 6.1%: And yesterday, the ABS’ forward looking dwelling


International students will soon dominate Australia’s universities

Late last year, Dr Bob Birrell from the Australian Population Research Institute (APRI) released a report showing how the share of international students at Australia’s Group of Eight (Go8) universities ballooned from 21.8% in 2012 to 28.9% in 2017: As we reported yesterday, the number of temporary student visas on issue ballooned by another 77,000


Is Australia’s recession free run over?

We can speculate. The excellent Damien Boey at Credit Suisse tabulates Q1 GDP for us: Business capex came in below expectations, falling by 1.7% in 1Q, with downward revisions to prior quarters’ data. For the national accounts, the ABS uses the earlier release of “construction work done” to estimate structures investment, as it has wider


Netflix sounds death knell for free-to-air TV

By Leith van Onselen Morgan Stanley has warned that the profits and advertising revenue of traditional media companies will decline as streaming video and music providers become more popular. This in turn has implications for the valuation of print and broadcast media companies. Morgan Stanley also says the rising cost of sports broadcasting rights may


Actual capex falls, to weigh on Q1 GDP

By Leith van Onselen The Australian Bureau of Statistics (ABS) today released data on capital expenditures (capex) for the March quarter, which registered a 1.7% seasonally adjusted fall in capex volumes over the quarter and a 1.9% decrease over the year (see below table). The 1.7% quarterly decline missed market expectations of a 0.5% rise.


Capex expectations better than feared

The ABS has released private capex expectations for the March QTR and the news is decent: Estimate 2 for total capital expenditure for 2019-20 is $99,139m. This is 12.8% higher than Estimate 2 for 2018-19. The main contributor to the increase was Mining (21.0%). Estimate 2 is 7.6% higher than Estimate 1 for 2019-20. The


Fair Work lifts minimum wage 3%

Via Fair Work: Despite the recent fall in GDP growth, the Australian economy has performed moderately well and the relevant data are all indicative of a strong labour market. Although business conditions have declined from the high levels recorded in the first half of 2018, they remain consistent with trend growth in the economy and


“Homelessness epidemic” sweeps Sydney and Melbourne

By Leith van Onselen Last year, Industry Super chief economist, Stephen Anthony, penned a detailed article in Fairfax warning of a “homelessness epidemic” in Sydney and Melbourne due to the serious lack of affordable and social housing. Now, a report by the Australian Housing and Urban Research Institute (AHURI) estimates that the proportion of people experiencing homelessness