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.


Morrison Government throws bone to vocational education

The Australian reports that the federal government will today announce a new jobs and skills package that is aimed at younger workers. Amongst other things, the government will spend an additional $1.5 billion over six months on wage subsidies for apprentices. It is estimated that about 100,000 apprentices will benefit from the new package, which


Seek job ads continue to recover

From Seek: OVERVIEW OF JUNE 2020 STATE OF THE NATION: SEEK job ads are up by 41.5% month on month SEEK job ads are down 32.8% year on year The sectors making the largest contribution to month-on-month job ad growth are: Trades & Services (51%), Healthcare & Medical (34%) and Hospitality & Tourism (80%) STATE


The international students bubble bursts

A bubble it was. It’s a clear imbalance when foreign kiddies made up a third of some suburbs, via The Conversation: International students made up more than 30% of the population in some Australian suburbs, before borders closed to prevent the spread of COVID-19. The Mitchell Institute mapped where international students lived using data from the ABS


Labor women discover immigration class war

Leith reported yesterday on the terrific shift by Jacinda Ardern against temporary migration: Both big and small companies are scrambling to hang on to their workforces, with thousands of temporary resident visas set to expire all at once…. There were about 350,000 temporary visa holders in the country during the lockdown, and the government estimated


The future is grim for shopping malls

Australia’s retail sector was already facing tough conditions before the arrival of COVID-19. Retail sales volumes were running well below average in the year to March 2020: And real household consumption recorded its first annual decline since the Global Financial Crisis: The picture has obviously darkened considerably amid the onset of COVID-19. Shutdowns closed ‘non-essential’


Vital export, international students, turn to food banks

Via the pathetic Guardian: International students in Melbourne are bracing for more hardship after the city returned to a six-week lockdown prompted by a spike in coronavirus cases. Melburnians who have lost work or who have been forced to close their businesses can access boosted unemployment benefits or the jobkeeper wage subsidy, but international students


Sydney and Melbourne CBDs are ghost towns

New data from Roy Morgan Research reveals that people movements across our two biggest CBDs are way down on pre-COVID levels, with Melbourne not surprisingly faring worst: Roy Morgan has partnered with leading technology innovator UberMedia to aggregate data from tens of thousands of mobile devices to assess the movements of Australians as we deal


AEP: Dont be fooled. Markets are pricing for depression

Via Ambrose Evans-Pritchard: Global bond markets refuse to ratify a V-shaped economic recovery. Futures contracts in fixed income derivatives are even more bearish, signalling nothing less than a worldwide deflationary slump as far as the eye can see. “If markets are pricing a ‘V’, they’re going about it in an odd way,” says Andrew Sheets


Business lobby launches suicidal tax cuts pitch

The Australian Chamber of Commerce & Industry (ACCI) has used its pre-budget submission to call for comprehensive tax reform, including bringing forward legislated personal income tax cuts. The ACCI also advocates a gradual reduction in the JobSeeker allowance to pre-COVID levels within six months, while it says the domestic economy will be vulnerable to further


More gas cartel drivel

From cartel champion, The Australian: A gas deal between US energy major ConocoPhillips and junior explorer 3D Oil in Victoria’s offshore Otway Basin could help ease a forecast supply crunch set to hit the east coast by 2024. After selling an 80 per cent stake in the T49P permit in the Otway Basin to Conoco,


Virus thumps consumer sentiment

Via Westpac’s Bill Evans: • The Westpac-Melbourne Institute Index of Consumer Sentiment fell 6.1% to 87.9 in July from 93.7 in June. The drop in confidence reverses all of last month’s impressive gain, taking the Index back to the weak levels seen in May but still leaving it 16% above April’s extreme low of 75.


Deloitte: No tourism recovery until 2023

Deloitte does not expect domestic travel volumes to return to 2019 levels until 2023, signaling more pain for Australia’s tourism industry: With the borders shut to international travellers, and this likely to be the case until at least the middle of next year, international tourism has essentially ceased. Data released by the ABS has shown


Sydney wants Melbourne Cup. Gets Melbourne COVID instead

Sydney’s plan to host this year’s Melbourne Cup has taken a solid hit, with the city now struggling to contain various COVID-19 infections spreading across the community. Not surprisingly, these infections appear to have been imported from Victoria: A coronavirus cluster at a south-western Sydney pub has been genomically linked to Melbourne cases, putting NSW


Australia’s jobs rebound stalls

Callam Pickering, economist at global jobs site Indeed, has release his weekly job postings update, which shows that new job postings – i.e. those on Indeed AU for seven days or less – have stalled: As shown above, new job postings are tracking 17% below the same time last year, but have worsened from 14%


Overseas arrivals near zero in June

The Australian Bureau of Statistics (ABS) has released preliminary overseas travel data for June, which predictably shows that arrivals have collapsed by 98% from pre-COVID levels: The collapse is evident across all nationalities: Across all visa classes: And across all jurisdictions: This is the new normal so long as COVID-19 ravages the world.


COVID-19 will drive decentralisation

COVID-19 has reportedly driven a surge of interest from Melburnians seeking to relocate to regional Victoria: Agents are reporting that Melbourne buyers have tripled in some regional areas… For those couples, families and even downsizers who’ve had a city escape on their radar, the latest lockdown has precipitated a wave of fresh inquiry, in addition


Payroll jobs still 5.7% below pre-COVID levels

The ABS has released its Weekly Payroll Jobs and Wages survey, which reveals that total payroll jobs at the end of June remained 5.7% below mid-March when Australia recorded its 100th COVID-19 case. Total wages, which have been bolstered by emergency income support, have also fallen by 3.2%. However, job numbers have rebounded 3.3% from


Dated NAB business survey lifts

Taken two weeks ago, pre-Victorian lockdown: • How confident are businesses? Confidence rose by 21pts to +1 index points in the month – a third consecutive large increase in confidence. • How did business conditions fare? Conditions rose 17pts to -7 index points – but remain very weak. • What components contributed to the result?


Victoria records another 270 COVID-19 infections

Melbourne’s COVID-19 outbreak remains out of control, with another 270 cases recorded today: NSW recorded 13 new cases, down slightly from 14 yesterday. There are now 1,803 active COVID-19 cases in Victoria, 97% of the nation’s total: 4224 cases have now been recorded in Victoria, with the curve looking rather scary: The nightmare continues.


Anatomy of a hotel quarantine disaster

Victoria’s chief health officer, Brett Sutton, confirmed over the weekend that Melbourne’s new COVID-19 clusters have different origins to the first wave and have been imported from overseas via failed hotel quarantine: The first case of a security guard working in a quarantine hotel being infected was reported on May 27, at a similar time


Josh Frydenberg: Australia’s real unemployment rate is 13.3%

Yesterday, Treasurer Josh Frydenberg acknowledged that Australia’s real unemployment rate is 13.3%, almost double the official figure of 7.1%: JOURNALIST: Treasurer, Andrew Probyn here from the ABC. Could you take us through the actual unemployment rate? You alluded to this morning, rather than it being 7.1 or thereabouts, the actual number is much, much higher


And now for a QLD outbreak

As the pollies chase their tails, egged on by Anus Bollocks and his ilk: BREAKING: 18 people now in Queensland are being tested for Coronavirus after attending The Crossroads Hotel in Casula. They are in quarantine awaiting test results. It’s expected that number will rise. @9NewsQueensland @9NewsAUS — Rob Morrison (@RMorrison9) July 13, 2020 #BREAKING:


NSW is going to lock down too

No it’s not, screams The Australian: The NSW government will prioritise economic recovery over pre-emptive lockdowns, even as it slashes the number of people who will be allowed in the state’s pubs and ramps up enforcement against venues flouting the rules. As Victorian health authorities warned that infected travellers visited a string of venues across


Why you should fear COVID-19

Gideon Meyerowitz-Katz, an epidemiologist working in chronic disease in Sydney’s west, has penned an article warning against complacency surrounding COVID-19. Meyerowitz-Katz claims there is a widely-held misconception that since only about 1% of people diagnosed with COVID-19 will die, the other 99% of the world’s population does not have to worry too much about the


CBA: Australia to recover 170k jobs in June

With June’s ABS labour market data due for release on Thursday, CBA head of Australian economics, Gareth Aird, forecasts that Australia’s unemployment rate will rise to 7.6% despite a 170,000 rebound in jobs: We expect employment to rise by 170k in June. We expect the unemployment rate to lift to 7.6% on a 1.1ppt rise