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.
The impossible is on the verge of happening. Australia is heading for a current account surplus. Balance of Payments in Q1 showed a tiny current deficit of $1bn: Assuming consensus GDP tomorrow, the percentage of GDP will be teency: The annual still has work to do at $30bn and 1.7% of GDP: But these numbers
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
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
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released retail sales figures for the month of April, which recorded a 0.1% decline in retail sales over the month in seasonally-adjusted terms, with annual sales growth falling to 2.8%: The result missed analysts’ expectations of a 0.2% rise. In trend terms, annual retail
By Leith van Onselen Doubts have emerged as to how many ongoing jobs would be created at Adani’s Carmichael coal mine if the $2 billion project goes ahead. A spokeswoman says the project would create 1,500 direct jobs and 6,750 indirect jobs during the ramp-up and construction phases. She adds that the number of jobs
By Leith van Onselen The Fair Work Commission cited a fall in inflation, which is measured by the Consumer Price Index, as the reason for a smaller increase in the minimum wage in 2019 than in 2018. Anglicare executive director Kasy Chambers notes that the CPI is based on a ‘basket of goods’ that does
By Leith van Onselen The RBA has released its commodity price index for May, which increased by 0.5% in SDR (currency weighted) terms – the key determinant of the terms-of-trade – and by 2.5% in Australian dollar terms: Preliminary estimates for May indicate that the index increased by 0.5 per cent (on a monthly average
Via FTAlphaville today: Readers will by now be familiar with the list of industries impacted by the US China trade war. These include soyabeans, cars, steel, and semiconductors. But one commodity is increasingly important to how the tensions play out: students. The Chinese state media is now saying the government will issue a warning 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
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
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%
By Leith van Onselen After The Guardian last week reported that NSW towns, including Dubbo and Tamworth, are facing a water emergency within months, The ABC has now joined the chorus: With towns across New South Wales at risk of running out of water within months, there are renewed calls for an urgent upgrade of water
The ABS just released its business indicators for the March quarter, which posted modest rises across most categories: In particular, inventories rose 0.7% versus -0.2% in Q4. Company profits (+1.7%) also beat last quarter (+0.8%), as did wages & salaries (+1.1% versus +0.8% in Q4). Therefore, the outlook for Q1 GDP has improved from dire
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
From the AIG: Fairly mediocre report.
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
By Leith van Onselen The ABC’s Michael Janda has done a good job analysing the explosive growth in wealth amongst Australia’s wealthiest elite, whose wealth has grown 50-fold since 1984: Back in 1984, Australia’s 200 richest people had a combined wealth of $6.4 billion. The Australian Financial Review has since taken over the list from
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
The Department of Home Affairs temporary visa statistics for the March quarter of 2019 have been released with the total number of temporary visas on issue ballooning past 2.3 million: As shown above, this was the highest number of temporary visas on issue for a March quarter on record, with total visas up 92,400 on
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
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
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
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.
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
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
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
The Department of Home Affairs has released its temporary visa statistics for the March quarter of 2019, which reveals that the number of temporary students visas on issue hit an all-time high 613,000, up 77,000 over the year and 280,000 higher than March 2013: The data is broadly matched by the Australian Bureau of Statistics’
By Leith van Onselen Last week we reported how more than one in five businesses audited by the Fair Work Ombudsman (FWO) across three states were found to have underpaid workers, with employers forced to backpay over $580,000 to nearly 1000 employees. Today, the Herald-Sun reports that the FWO is taking action against retailer Uncle
If you’re an economist and can assume away anything you like, sure, via the AFR: The trade war between the United States and China will shave just 0.07 of a percentage point off Australia’s gross domestic product in the next two years – five times less than Canada and three times less than the global
By Leith van Onselen I reported last week how NSW towns including Dubbo and Tamworth are facing a water emergency within months as drought causes dam levels to plunge: Towns in western and central New South Wales, including Dubbo, Nyngan, Cobar, Walgett and Tamworth, are facing a crisis in their water supplies within a few
