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.


How Labor should cut immigration

Even before the COVID-19 pandemic hit, there was a strong case to cut immigration, which has run at turbo-charged levels for 15 years: First, Australian real wage growth has remained stillborn for nearly 10 years: Australia’s labour underutilisation rate has been stuck at stubbornly high levels: Whereas average monthly hours worked has collapsed to record


New car sales plunge into black hole

The Federal Chamber of Automotive Industries (FCAI) has released its new car sales report for April, which saw annual car sales collapse to their lowest level since March 2010: It was the 25th consecutive month of decline, with annual new car sales now running 17.5% below their March 2018 peak. According to FCAI: “A total


RBA holds cash rate at 0.25%. Flags 10% unemployment

Statement by Philip Lowe, Governor: Monetary Policy Decision: At its meeting today, the Board decided to maintain the current policy settings, including the targets for the cash rate and the yield on 3-year Australian Government bonds of 25 basis points. The global economy is experiencing a severe downturn as countries seek to contain the coronavirus.


Labor attacks Liveras

Labor’s Craig Emerson at the AFR: Liveris has advised Trump on manufacturing and trade policy. Upon his appointment to the co-ordination commission, Liveris signalled the advice he would provide: “Australia drank the free-trade juice and decided that off-shoring was OK. Well, that era is gone,” adding “If I can achieve anything like what we achieved


Gargantuan output gaps upon us

Via FTAlpahville: The output gap is a concept we got familiar with during the global financial crisis. But it’s time to revisit it, in some detail. One reason the measure often gets overlooked in mainstream headlines is because it doesn’t sound all that consequential. Yet it is. Arguably more so than ever. Encumbering its popularity,


Keneally doubles down with broader Labor support

Go Kristina, again at The Australian, the new home of woke: Kristina Keneally has refused to back down on calling for cuts to migration, repeating claims that the coronavirus is exposing the fact that “Australia is heavily relying on temporary migration that often results in workers being exploited.” Speaking on ABC Radio National, Ms Keneally added


Consumer confidence rebounds to catastrophic

Via ANZ: ANZ-Roy Morgan Australian Consumer Confidence: is overall around levels seen in the GFC, while a number of the sub-indices have returned to levels that, while still low, are within the previous historical experience. #ausecon #ausretail @DavidPlank12 @roymorganonline — ANZ_Research (@ANZ_Research) May 4, 2020


CBA: Consumer spending turns “less bad”

By Gareth Aird, Head of Australian Economics at CBA Key Points: CBA credit & debit card spend indicates that spending momentum has improved over the last two weeks. Total spending is still well down on year ago levels, but the most recent data suggests that the pulse of spending has picked up across a range


CBA services PMI goes more or less to zero

Close enough: Latest PMI data showed the extent to which stricter measures to contain the coronavirus disease 2019 (COVID-19) outbreak impacted the Australian service sector during April, with business activity contracting at a record rate. This was accompanied by a severe fall in sales amid reports of temporary business closures. Job shedding intensified as a


ANZ job ads halve

ANZ Australian Job Ads halved in April. This was almost five times the previous record monthly fall of 11.3% in January 2009, during the GFC. #ausecon #employment #auspol @cfbirch — ANZ_Research (@ANZ_Research) May 4, 2020 Not so good.


Labor erupts into civil war over immigration

The Australian Labor Party (ALP) has erupted into civil war over immigration. Last week, Labor’s multicultural affairs spokesperson, Andrew Giles, demanded that welfare payments be extended to millions of temporary migrants living in Australia: “We can’t allow people to fall through the cracks and become destitute,” he told Guardian Australia. “The Morrison government can fix


Spending plunges as economic stimulus fades

Economic consultants, AlphaBeta, have updated their real time tracker on the Morrison Government’s stimulus package, which shows that its impact on consumption is fading: AlphaBeta & illion’s real time tracker shows the stimulus was very effective in boosting spending, but has now worn off as consumption by stimulus recipients falls back in line with households


Roy Morgan: 15.3% of Aussies unemployed in April

Roy Morgan Research has released its unemployment estimate for April, which has shown a massive increase in unemployment since the COVID-19 lockdown commenced in mid-March: Roy Morgan’s unemployment measure for April shows a massive 2.16 million Australians were unemployed (15.3% of the workforce), with an additional 1.32 million (9.4%) under-employed. In total 3.5 million (24.7%


Immigration fight begins

The carcass of COVID-19 is barely cold and here it comes. Domain leads us off: Australia’s dependence on immigration to grow the economy is about to be sorely tested. …Over the past decade, the nation’s permanent population has grown by 3.7 million to more than 25 million. Of that increase, 60 per cent was due


Aussie unemployment already at 11%

Via Bloomie: The number of Australians receiving unemployment benefits soared to 1.3 million as of April 24, from 800,000 at end-2019, Department of Social Security figures released Thursday to a parliamentary panel showed. There were a further 300,000 applications yet to be processed. Based on these numbers, the jobless rate would have jumped to 8.8%,


ABS: One-third of households financially worse off by COVID-19

From The ABS: “One third of Australians (31 per cent) reported that their household finances had worsened over this period, while one in seven (14 per cent) reported an improvement,” said Michelle Marquardt, ABS Program Manager for Household Surveys. While the majority of Australians (81 per cent) said their household could raise $2,000 for something


Working from home to become new normal

The AFR’s workplace editor, Sally Patten, believes that office workers should expect to work from home for at least half the week for the rest of 2020, while staff are tipped to work from home one or two days a week over the longer-term: Large businesses that are developing plans for staff to start moving